Should I Get a Sell-Side Quality of Earnings Before I Sell My Business?

By Ed Weeks Jr., MBA, CM&AA, Weeks Consulting Group

Last updated: October 16, 2026

Consider a sell-side quality of earnings review when a sale is realistic and the likely diligence risk justifies the cost. The right scope and timing depend on your records, proposed adjustments, likely buyer and transaction size. Plan the work with your advisor and accounting firm close enough to going to market that the analysis remains useful, often within about six months.

A sell-side quality of earnings report, usually shortened to QoE, is an independent accounting firm doing roughly what the buyer’s firm will do, before you go to market. The buyer is going to test your earnings either way. The only question is whether you see that work first.

Here’s what I tell owners: test the numbers before a buyer does. A sell-side review can help you identify unsupported adjustments before negotiations. It does not guarantee a price or eliminate a buyer’s diligence. Match the scope to the risk, and agree how the firm will update the work if your sale timeline changes.

Owners tell me about friends who were offered seven X and then got three X after somebody went through and destroyed them in due diligence. That’s what you’re paying to avoid.

What does a quality of earnings report test?

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 does timing matter 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.

Late diligence findings can change both the price and the working capital terms. Test material adjustments early enough to explain, document or correct them.

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:

Larger or complex transactions. Discuss a sell-side QoE where the likely price exposure from unsupported earnings materially exceeds the cost. Transaction value alone does not make a full report necessary.

Smaller transactions. Compare a full QoE with a narrower financial readiness review. The buyer, lender, quality of your books and proposed adjustments determine the useful scope.

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.

How much does a sell-side QoE cost?

Fees depend on the size and complexity of the business, the quality of your records and the scope. Get a written proposal from an independent accounting firm. A narrower financial readiness review may be sufficient for some businesses.

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 simple math, 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 should I 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 does the new SBA rule change the math?

For applications issued an SBA loan number on or after October 1, 2026, SOP 50 10 8.1, Appendix 15 generally requires an independent QoE for initial acquisitions and business expansions with a business purchase price of $3 million or more. Qualifying owner-occupied special-purpose property acquisitions have an exception.

A few details matter for sellers:

• The report must satisfy the lender’s requirements. A report you commission as the seller does not satisfy the requirement (HartmannRhodes). A buyer-commissioned report may qualify after review by one of the lender’s approved vendors. 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-acceptable QoE will generally be required unless an applicable exception applies. 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.

How do I decide?

Ask yourself four questions:

1. Is my enterprise value likely above $10 million? If yes, discuss the scope and cost of a sell-side review.
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, confirm the lender’s QoE requirement and any applicable exception.
4. Am I within about six months of going to market? If yes, discuss the right timing with the 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.

This article is general education, not legal, tax, or investment advice. Fees and scope vary by engagement.

Want to see where your business stands? Take the Business Optionality Assessment. It takes about 3 minutes: https://edweeksjr.com/assessment/

About the author

Ed Weeks Jr., MBA, CM&AA, Weeks Consulting Group. Ed advises owners of $2M to $20M businesses on growth, financing, M&A and exits.

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

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