What is a quality of earnings review?

A quality-of-earnings (QoE) review is a forensic analysis of a company's financials, commissioned by buyers (and increasingly by sellers) to establish true recurring EBITDA. It tests revenue recognition, add-backs, customer-level profitability, and working-capital needs — and its findings routinely move purchase price.

Should a seller do their own QoE before going to market?

Sell-side QoE reviews typically cost $15,000–$50,000 and have become standard for well-advised sellers, because finding and fixing issues before diligence protects price. The cheaper path is running QoE-grade financial discipline for the final 12–24 months so there is nothing material to find.

The seller's guide to quality of earnings — before the buyer runs one

Sterling Exit Partners · Updated July 5, 2026 · Owner's guides

Short answer: Nearly every serious buyer will commission a quality-of-earnings review of your books — a forensic re-computation of your real, recurring EBITDA. Sellers who wait for the buyer's QoE to find the problems get retraded; sellers who fix the classic findings 12+ months early — documented add-backs, clean revenue recognition, normalized working capital — keep their price.

What the buyer's team will actually do

They rebuild your EBITDA from source documents. Revenue tied to contracts and cash receipts. Expenses tested for completeness. Every add-back challenged. Customer-level margins computed. Working capital normalized month by month. It's an audit-grade skeptical read — conducted by people paid to find reasons to pay you less.

The findings that retrade deals

Aggressive add-backs. The "one-time" expense that recurs every year; the family salary with no replacement cost modeled.
Revenue timing. Deposits booked as revenue, percentage-of-completion guesswork, December sales that belong to January.
Channel and customer profitability. The big account you're proud of turns out to be your least profitable once true costs attach.
Working-capital surprises. A peg set off unrepresentative months quietly moves six figures at closing.

The seller's pre-emption plan

12+ months out: run a QoE-grade self-review — the same skeptical read, on your side of the table. Fix revenue recognition, kill or document every add-back, and start the clean monthly close that produces defendable numbers.

6 months out: assemble the data room as you go: contracts, add-back support, customer profitability, working-capital history. A seller who hands over organized evidence changes the psychology of the entire diligence.

At market: your banker negotiates from verified numbers — and the buyer's QoE team, finding nothing, becomes your best closing argument.

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This article is general information, not legal, tax, or investment advice. Sterling Exit Partners · 10 South Riverside Plaza, Chicago, IL 60606.