A Quality of Earnings report—or QofE—is the most effective tool for preparing your business for a high-value sale. Think of it as a specialized “home inspection” for your financials. While buyers traditionally initiated these reports to satisfy lenders, proactive sellers are now using Sell-Side QofE reports to take control of the narrative before a deal even hits the table.
Why Today’s Business Owners Need a Sell-Side QofE
In the current market, “time kills all deals” is more relevant than ever. A QofE conducted before marketing your business acts as a roadmap for efficient due diligence, helping you:
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Identify Deal-Breakers Early: Fix accounting anomalies before a buyer finds them.
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Validate Value: Prove your “Adjusted EBITDA” is backed by hard data.
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Speed Up Financing: Provide a report that a buyer’s lender can trust, shortening the closing window.
Key Components of a Modern Quality of Earnings Report
1. Calculating Adjusted EBITDA & “Add-Backs”
Most business valuations are based on a multiple of EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). However, your tax return rarely reflects your true operating power. We identify “add-backs”—discretionary or non-recurring expenses, such as owner’s compensation or one-time legal fees—to show a buyer what their actual operating profits will be.
2. Proof of Cash & Revenue Quality
In 2026, buyers are looking past the income statement. A modern QofE includes a Proof of Cash analysis that reconciles bank deposits directly to reported revenue. This ensures your earnings aren’t just “accounting maneuvers” but represent actual liquidity.
3. Net Working Capital (NWC) Analysis
The “NWC Peg” is one of the most litigated parts of a deal. A QofE prepares you to negotiate the amount of working capital that must remain in the business, preventing a “deficit surprise” in which you have to write a check back to the buyer at closing.
New for 2026: The Compliance Deep-Dive
M&A due diligence has expanded. Buyers are now scrutinizing Employee Benefit Plan (EBP) compliance more than ever. With the full implementation of the SECURE 2.0 Act, any gaps in your 401(k) administration or Roth catch-up contributions can become a “successor liability.” A quality QofE now flags these risks early so they don’t result in an escrow holdback.
Avoiding Common Pitfalls
Many owners lose millions by missing legitimate add-backs or, conversely, by including “aggressive” adjustments that lose credibility with buyers. Common errors include:
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Balance Sheet “Add-backs”: Only discretionary expenses count; balance sheet movements do not.
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Poor Accounting Principles: Not having financials on an accrual basis is the #1 reason deals slow down.
How Long Does the Process Take?
At Calvetti Ferguson, we typically complete a QofE report within four to six weeks. The timeline depends largely on the readiness of your financial records and the speed of communication.
Ready to prepare your business for a premium exit?
The assurance team at Calvetti Ferguson specializes in Sell-Side Quality of Earnings reports and EBP compliance. Don’t leave your valuation to chance—let us help you tell your story through the numbers.
Contact Our Team
We partner with companies, private equity firms, and family offices to provide bespoke solutions to address their complex accounting, tax, and advisory needs. Complete the form below, and a team member will contact you within one business day to discuss your specific needs.