Sell-Side vs. Buy-Side Quality of Earnings: Which One You Need

Almost every owner who sells to a private equity firm or a well-financed strategic buyer goes through a quality of earnings review. The question is whether the first one is yours or theirs. A quality of earnings report (you will also see it written QoE, QofE or Q of E) can be commissioned by either side of a deal, and the two versions do different jobs even though they look at the same numbers.

The short version: a buy-side QofE is the buyer's check on your earnings, done after you sign a letter of intent, while you are locked into exclusivity. A sell-side QofE is the same kind of analysis done for you, before you go to market, so the number you put in front of buyers has already been tested. If your company is large enough to attract institutional buyers, you will get the buy-side review whether you want it or not. The real decision is whether to commission a sell-side report first. Our earlier post on sell-side quality of earnings strategy covers how to run that process. This one compares the two reports side by side and works through the decision.

What a Quality of Earnings Report Is, and What It Is Not

A quality of earnings report rebuilds your EBITDA from the general ledger up. An accounting firm tests each adjustment between reported net income and adjusted EBITDA, looks at whether revenue is recurring or one-off, checks margins by product or customer, and works out what normal working capital looks like for the business. The output is an independent view of what the company actually earns on a repeatable basis. If you want the mechanics of the earnings figure itself, our guide to calculating adjusted EBITDA walks through every component.

It is not an audit. A July 2026 fee guide published by BD Emerson, a consulting firm that sells audit and transaction advisory services, puts the difference plainly: an audit tests whether statements are fairly stated at a materiality threshold, while a QoE asks whether earnings are sustainable and what the buyer is actually paying for. The same guide notes that audited financials reduce QoE cost by roughly 10 to 25 percent, because the records have already been tested, but they do not replace the QoE (BD Emerson, "How Much Does a Quality of Earnings Report Cost?", July 25, 2026). Owners who already pay for an audit are often surprised by this. The audit tells a buyer your books are right. It does not tell them which of your earnings will still be there next year.

The Sell-Side QofE: Your Numbers, Tested Before Anyone Else Sees Them

You hire the accounting firm, you control the timing, and the report is written with every future bidder in mind. That last point is what makes it different. A sell-side report has to anticipate the questions each buyer's accountants will ask and still hold up when they try to take it apart. It usually ends up in the data room, and it becomes the starting point for every buyer's own diligence.

What it protects is your EBITDA, and through it, your price. In our experience, the most common reason for renegotiation after a letter of intent is that the buyer's accountants find the earnings are lower than the number the offer was built on. Every dollar of EBITDA they take out is multiplied by the purchase multiple. A sell-side report finds those problems while you still have choices. You can fix the issue, document it properly, or drop the adjustment and go to market with a lower but defensible figure. Once you are in exclusivity, the only choice left is how much price to give up.

It also finds money. In ACG's December 2025 write-up on the trend, Scott Linch, an investment banker who leads a national firm's capital advisory practice, said sell-side engagements "should always pay for themselves," because the work should turn up positive add-backs, not only problems (Katie Maloney, ACG Insights, "Why More Sellers Are Using Quality of Earnings Reports for M&A Deals", December 2, 2025). Our post on add-backs business owners overlook lists the ones we see missed most often.

The Buy-Side QofE: The Buyer's Check Before Closing

The buyer hires its own accounting firm after you sign the letter of intent. The firm works for the buyer, and its job is to confirm that the earnings justify the price, or to find out by how much they don't. It is not trying to be unfair to you, but every judgment call it makes is made from the buyer's side of the table.

Buyers use the report for more than a yes-or-no on price:

• Confirming or cutting the price. The offer in your letter of intent was a multiple of your EBITDA. If the buy-side review lowers that EBITDA, expect a request to lower the price by the same multiple.
• Setting the working capital target. Most deals require you to deliver a normal level of working capital at closing. The buy-side analysis of past months is usually where the buyer's proposed target comes from, and the target turns into dollars at closing. In the ACG article, Linch put it simply: if you promised $100 of working capital and deliver $80, your purchase price drops by $20.
• Shaping the purchase agreement. Issues the review turns up become specific indemnities, escrows, earnout terms or representations. Our post on earnouts covers how a disputed forecast can become contingent price.
• Satisfying lenders. Debt financing usually depends on the lender accepting the buyer's view of EBITDA. In smaller deals this is now written into federal rules: under SBA SOP 50 10 8.1, beginning October 1, 2026, lenders financing certain SBA 7(a) acquisitions with purchase prices of $3 million or more (excluding owner-occupied real estate) must obtain an independent QoE report commissioned by the lender, and buyer-prepared or seller-prepared reports do not satisfy the requirement (CohnReznick, "What the new SBA QoE requirement means for buyers, lenders, investors, and deal execution", October 8, 2026).

Having a sell-side report does not make the buy-side review go away. It changes what the buyer's team spends its time on. Michael Vaccarella, who leads the private equity and transaction advisory team at accounting firm Wipfli, told ACG that when he is working for a buyer and a sell-side report is available, "I feel like I'm 25% or 30% ahead of the game," and that in his experience it moves the deal faster "over 90% of the time." That is one person's estimate, not a study, but it matches what we see: the buyer's accountants start by testing your report instead of building their own view from scratch.

Sell-Side vs. Buy-Side at a Glance

Fieldwork figures are from the two fee guides cited in the cost section below.

What Each One Costs

We could not find an independent survey of QofE fees. What exists are fee guides published by firms that sell the work, and they disagree enough that you should treat any single range with care. Here are two published this year, both read in full:

• BD Emerson's July 2026 guide puts a standard buy-side QoE, on a four to six week timeline, at $25,000 to $50,000 for deals of $5 million to $15 million of enterprise value, $45,000 to $90,000 for $15 million to $75 million, and $80,000 to $150,000 for $75 million to $150 million. It says sell-side work runs 10 to 30 percent higher than the equivalent buy-side scope and typically takes five to eight weeks, because the report has to survive every buyer who reads it. It also says cash-basis or hybrid books add 20 to 50 percent to the fee (July 25, 2026).
• A March 2026 guide by Will McCurdy, CPA, of Bedrock, a boutique provider that sells flat-fee reports, puts deals of $10 million to $30 million at $12,000 to $25,000 with three to four weeks of turnaround, and $30 million and up at $25,000 to $50,000 or more. It says sell-side reports are sometimes slightly less expensive than buy-side, because the seller controls the information flow and can prepare documents in advance (Bedrock, "How Much Does a Quality of Earnings Report Cost?", March 17, 2026).

The gap between those two is mostly about scope and who does the work. A sell-side report that buyers will lean on has to be thorough enough that their accountants respect it, and a thin report from a firm no buyer has heard of may save you money up front and buy you very little in diligence. When you collect quotes, ask what the scope includes (monthly accrual rebuilds, a proof of cash, customer and product margin analysis, a working capital analysis), who will staff it, and whether the firm's reports are routinely accepted by private equity buyers.

The cost that matters more is the one you avoid. To illustrate with round numbers: at a 6x multiple, every $100,000 of EBITDA a buyer's accountants remove takes $600,000 off the price. Our post on EBITDA multiples by deal size and industry shows where that multiple is likely to sit for a company your size.

Timing: When Each One Happens

The buy-side review runs on the buyer's clock, inside your exclusivity window, which is why it carries so much weight. Exclusivity periods are finite, and both sides have spent heavily by the time the accountants report. Deals also take longer than most owners expect: GF Data found that roughly 30% of the 360 private equity deals it tracked between Q3 2024 and Q2 2025 took 12 months or longer from letter of intent to close (GF Data, "New Data Fields Unlock Fresh Insights into Middle-Market M&A," October 27, 2025). A diligence finding that sends the parties back to renegotiate is one of the things that stretches that timeline.

For the sell-side report, Linch and Vaccarella both told ACG that three to six months before a sale process is a good time to start, and BD Emerson's fee guide gives the same window. We think of the timing in two stages. The cleanup work that a QofE rewards, such as moving to accrual accounting, separating personal expenses, documenting add-backs and fixing inventory records, should start 12 to 18 months out, as our sell-side QoE post and 12-month pre-exit checklist describe. The formal report itself then gets done three to six months before launch, so it covers a recent trailing twelve months and the figures still match when buyers start reading.

Common Quality of Earnings Adjustments

Both reports work through the same categories of adjustment. The difference is who decides which ones stick. These are the adjustments that come up most often in lower-middle-market deals:

1. Owner compensation. Your salary, bonus and benefits are restated to what it would cost to hire someone to do your job. If you pay yourself well above market, the excess is added back. If you pay yourself below market, the difference comes off EBITDA, and buy-side teams look for that.
2. Personal and discretionary expenses. Vehicles, travel, family members on payroll who don't work in the business, club dues. The ACG article uses a private plane or boat as the example: costs that won't carry over to a new owner can be added back, if you can document them.
3. One-time items. A single lawsuit, an ERP implementation, a recruiting fee for a role that is now filled. The test is whether the cost will really not repeat. A "one-time" legal expense that shows up three years running will not be accepted. Our post on which add-backs buyers accept covers the documentation standard for each category.
4. Related-party rent. Many owners hold the real estate in a separate entity and charge the company whatever rent is convenient. The report restates rent to market, which can move EBITDA in either direction.
5. Revenue recognition and cutoff. Revenue booked in the wrong period, deposits treated as sales, or project revenue recognized unevenly. The ACG article describes companies doing long-term projects that should recognize revenue in line with costs incurred but don't track it well, which produces inconsistent margins that a look-back analysis can smooth out.
6. Inventory. Obsolete or slow-moving stock that was never written down, costing methods that shift profit between periods, and year-end physical counts that don't match the books. The ACG piece also notes that many companies built up inventory during the pandemic supply crunch and wanted to be paid for it at sale.
7. Pro forma adjustments. Changes that are real but not yet fully in the trailing twelve months: a price increase taken mid-year, a lost customer, a new hire. Sellers want credit for the good ones. Buyers want to see them in actual results first, and these are the adjustments most often argued over.

Adjustments cut both ways. A thorough sell-side report will sometimes lower your EBITDA, for example by accruing expenses you were booking on a cash basis or reserving for inventory that should have been written off. That is uncomfortable, but it is better to learn it from your own accountants than from the buyer's. A sell-side engagement can also uncover non-financial exposure, such as sales tax that was never collected in states where the company has nexus, which the ACG article notes can surface when tax diligence is included in the sell-side scope.

Does a Sell-Side QofE Raise the Price? What the Data Says

GF Data, which collects completed-deal data on private equity-sponsored transactions, began reporting sell-side QoE as a new deal attribute in fall 2025. Across 360 transactions completed between Q3 2024 and Q2 2025, nearly 50% included a sell-side QoE (GF Data, October 27, 2025). The headline result, as reported by ACG: sellers that used a sell-side QoE averaged 7.4x TEV/EBITDA, compared with 7.0x for those that didn't, with the benefit most notable above $50 million of enterprise value (ACG Insights, December 2, 2025).

The detail is less tidy, and worth knowing if your company is on the smaller end. In the $10 million to $25 million enterprise value band, deals with a sell-side QoE averaged 5.9x trailing EBITDA, compared with 6.6x for deals without one. In the $100 million to $250 million band, deals with a QoE averaged a full turn higher. GF Data's own reading was that a QoE alone doesn't guarantee higher pricing in smaller deals, where add-on structure and platform status may matter more.

We would not read the smaller-deal figure as proof that a sell-side report hurts value. These are averages of different companies, and sellers with messier books may be the ones most likely to commission a report in the first place. What the data does show is that a QofE is not a pricing lever by itself. It protects the price you negotiate. It doesn't set it.

Why Manufacturers, Distributors and Logistics Companies Often Commission One

Most of the adjustments that get fought over in diligence sit in the balance sheet items these industries carry: inventory, receivables, payables, equipment. Founder-led companies in these sectors also tend to run lean finance teams, and many keep books that work fine for running the business and filing taxes but were never built for a buyer's review. Linch estimated in the ACG piece that at least 90% of the private equity-backed deals he sees use a sell-side QoE, against only about 50% of lower-middle-market founder-led businesses. If you are selling to a private equity firm, the company across the table is used to sellers who come prepared.

Where the issues usually show up by industry:

• Manufacturing. Inventory costing and reserves, overhead absorption, work in process, warranty claims, and the gap between maintenance capex and the depreciation on your books. Customer concentration with one or two OEM programs also gets close attention. More on what buyers look for is on our manufacturing industry page.
• Distribution. Vendor rebates and allowances that are booked when received rather than when earned, inventory shrink, freight cost allocation, and seasonal swings in working capital that make the target at closing a real negotiation. Our distribution industry page covers the other factors we work through with distribution owners.
• Transportation and logistics. Fuel surcharge timing, driver classification, insurance and claims reserves, and whether equipment is leased or owned, which changes what counts as an operating expense. For asset-heavy carriers, buyers will also want to see the real cost of keeping the fleet current. See our transportation and logistics page for how buyers underwrite freight businesses.

Working capital deserves its own mention. For a distributor carrying months of inventory or a manufacturer with large receivables, the working capital target in the purchase agreement can move the cash you receive at closing by more than many of the add-back disputes. A sell-side analysis lets you propose a target based on your own monthly history, rather than react to the buyer's.

When You Can Reasonably Skip a Sell-Side QofE

It isn't always worth it. If you are selling a smaller company to a single individual buyer, or the deal will be financed through an SBA 7(a) loan with a purchase price of $3 million or more, where the lender must commission its own report regardless, a full sell-side report may duplicate work. If you already have clean, accrual-based, reviewed or audited statements, simple revenue, and an advisor who has built a careful normalization schedule, a narrower scope may be enough. And if you are a year or more from a sale, start with the cleanup and wait on the formal report.

What we advise against is skipping both the cleanup and the report and hoping the buyer's accountants agree with your management accounts. That is the scenario our post on deal killers describes most often.

If you sell to an institutional buyer, you will get a quality of earnings review either way. The only choice is whether you see the findings while you can still do something about them.