Sell-Side Quality of Earnings: Should You Get One Before You Sell Your Business?

If you sell a company of any real size, someone is going to test your earnings. A buyer will hire an accounting firm, that firm will spend several weeks inside your books, and the number they come back with is the number the rest of the deal gets built on.

The only question is whether you see that work first.

A sell-side quality of earnings report, usually shortened to QoE, is how you see it first. You hire an independent accounting firm to do roughly what the buyer’s firm will do, before you go to market, so the surprises land on your desk instead of in the middle of a negotiation.

This article covers what a sell-side QoE is, who tends to benefit most, what it typically costs, when to start, and how the new SBA rule that took effect on October 1 changes the math for smaller deals.

What a quality of earnings report actually tests

Your CPA’s year-end work answers one question: are these financial statements fairly presented for tax and reporting purposes? A QoE answers a different one: what is this business really earning on a normal, repeatable basis, and can that number be supported?

A typical QoE looks at:

• Adjusted EBITDA. Every add-back you claim (your above-market salary, a one-time lawsuit, a family member on payroll, a personal vehicle) gets tested for support. Some survive and some don’t.
• Revenue quality. How much is recurring, how concentrated it is, and whether the trend holds up month by month.
• Margins by line of business. Where the money is actually made.
• Proof of cash. Reconciling what your books say came in and went out against what actually moved through the bank.
• Net working capital. What a "normal" level of receivables, inventory, and payables looks like, which becomes the basis for the working capital peg in your purchase agreement.
• Debt and debt-like items. Deferred revenue, customer deposits, accrued bonuses, and other items a buyer may try to subtract from the price.

The output is a normalized earnings figure and a list of findings. On the buy side, that figure is what the buyer uses to confirm or renegotiate the price. On the sell side, it’s what you use to defend your price.

Why the timing matters so much

A finding is cheaper the earlier you find it.

Before you go to market, an unsupported add-back is something you document, fix, or drop. A reconciliation gap is something you investigate on your own schedule. You set your asking price on a number you already know will hold up.

After you sign a letter of intent, the same finding is a reason to reopen price. You have usually agreed to exclusivity at that point, so you’ve stopped talking to other buyers, and your leverage is at its lowest.

I spoke recently with a quality of earnings provider who works on both sides of deals. He told me he had seen a lot of buy-side engagements over the last 18 months where the seller had done no sell-side work, and value moved toward the buyer as a result. His other observation stuck with me: sellers often realize they needed the work near signing, when working capital and QoE findings start to hit the purchase agreement.

That matches what I see. Price cuts late in a deal rarely come from the business getting worse. They tend to come from a number that was never tested.

Who should get a sell-side QoE

There’s no universal rule here, and anyone who gives you one is guessing about your company. A few useful markers:

Enterprise value above roughly $10 million. The same provider put it plainly: for a founder-owned company with enterprise value above about $10 million, a sell-side QoE is worth having even at a cost of around $60,000. At that size, a single rejected add-back can move the price by more than the report costs.

Between about $3 million and $10 million. This is where it gets harder. He said sellers at this size are hard to convince to spend $35,000 to $75,000, and plenty skip it. Whether it makes sense depends on how clean your books are, how many add-backs you plan to claim, and who your likely buyer is. The new SBA rule (below) is a reason to look harder at this band.

Any size, if your adjustments are large or unusual. If your adjusted EBITDA is meaningfully higher than what your tax return shows, a buyer will test the gap. Better that you test it first.

Any size, if your books have known weak spots. Cash-basis accounting, commingled personal expenses, inconsistent month-end closes, or revenue recognized when cash arrives instead of when work is done. These are fixable, and a sell-side review tells you which ones matter.

What it typically costs

Fees depend on the size and complexity of the business, the quality of your records, and the scope you ask for. The ranges I hear most often from providers for lower middle market companies run from about $35,000 to $75,000, with larger or messier engagements above that. A lighter-scope review, sometimes called a QoE "lite" or a financial readiness review, can cost less and still catch the biggest issues.

Put the fee next to the math. If a buyer applies a 6x multiple and rejects $150,000 of your add-backs, that’s $900,000 off the price. Even one avoided retrade can pay for the report many times over. That’s an illustration, not a promise. Some sell-side reports find very little, and that’s a useful answer too, because it lets you hold your price with confidence.

When to start

Start too late and the report isn’t ready when buyers want it. Start too early and the numbers go stale, so the firm has to roll the analysis forward to more recent months, which costs time and money.

The provider I spoke with suggested starting the sell-side QoE within about six months of when you expect to be ready to go to market. That keeps the data fresh and avoids paying for repeated roll-forwards.

The prep work before that has a longer runway. Monthly closes, clean add-back documentation, and books that tie to your tax returns take quarters, not weeks. If you think a sale is two or three years out, that’s the work to start now.

How the new SBA rule changes the math

Since October 1, 2026, SBA 7(a) lenders must get an independent quality of earnings report on initial acquisitions and business expansions where the business purchase price is $3 million or more (Carr, Riggs & Ingram). The rule applies to applications that receive an SBA loan number on or after that date.

A few details matter for sellers:

• The report is ordered by the lender, for the lender. A report you commission as the seller does not satisfy the requirement (HartmannRhodes). Your sell-side work is preparation, not a substitute.
• The lender has to use the QoE earnings figure in its debt-service coverage calculation. If the validated earnings don’t support the proposed debt, the loan may shrink or the buyer may need more equity. In practice, that can come back to you as a request for a bigger seller note or a lower price.
• The coverage floor moved too. Initial acquisitions now need 1.25x debt-service coverage on historical or adjusted historical earnings, up from 1.15x. HartmannRhodes estimates that change alone cuts the maximum debt a given cash flow supports by roughly 8%.
• The QoE includes a cash proof reconciling reported receipts and disbursements to bank activity for the trailing 12 months and the two most recent fiscal years.
• The $3 million test uses business purchase price, which excludes the appraised value of owner-occupied real estate in the deal. Owner buyouts and ESOPs are excluded from the automatic requirement, though a lender can still require a QoE.

Here’s why this matters if your company is in the $3 million to $10 million range. That’s exactly the band where sellers have historically skipped sell-side work. If your likely buyer is an individual or a small company using SBA financing, a lender-ordered QoE is now coming whether you prepare or not. The only choice is whether you see the findings before the buyer’s lender does.

One more caution from the HartmannRhodes piece that I agree with: pricing your business just under $3 million to avoid the requirement is a bad reason to set a price. The issues a QoE would find don’t go away. They show up in diligence instead.

A simple way to decide

Ask yourself four questions:

1. Is my enterprise value likely above $10 million? If yes, plan for a sell-side QoE.
2. Is my adjusted EBITDA meaningfully higher than my tax-return earnings? If yes, test the adjustments before a buyer does.
3. Is my most likely buyer using SBA financing on a $3 million+ purchase price? If yes, a lender QoE is coming, so see your findings first.
4. Am I within about six months of going to market? If yes, now is the window to engage a firm. If I’m further out, I work on monthly closes and documentation now and engage the firm later.

None of this commits you to selling. Knowing what your earnings look like to an outsider is useful whether you sell, bring in a partner, refinance, or keep building.

If you want a quick read on where your company stands before any buyer looks, the WCG assessment takes about 3 minutes: https://edweeksjr.com/assessment/

This article is general education, not legal, tax, or investment advice. Fee ranges are typical figures reported to us by providers and vary by engagement.

Sources

• Carr, Riggs & Ingram, "New SBA Quality of Earnings Requirement: What 7(a) Lenders Need to Know" (Oct 8, 2026): https://www.criadv.com/insight/sba-quality-of-earnings-requirement-7a-loans/
• HartmannRhodes, "New SBA Business Acquisition Rules Effective October 1, 2026" (Sep 22, updated Sep 29, 2026): https://www.hartmannrhodes.com/post/new-sba-business-acquisition-rules-october-1-2026
• Conversation with a quality of earnings provider, October 2026 (shared anonymously with permission)

Related reading: Same EBITDA, Different Price | Paper Before Price