What a QoE Report Covers
A QoE is not an audit. It's a targeted financial review focused on one question: is the seller's EBITDA real, recurring, and defensible? A typical QoE engagement runs 3–6 weeks and covers:
- Revenue quality — Is revenue contracted, recurring, or transactional? Are there one-time items inflating the base period?
- Add-back scrutiny — Every owner add-back is tested for legitimacy. Buyers accept some; they push back hard on others.
- Working capital normalization — The QoE firm calculates a "normal" working capital level to anchor the peg.
- Net debt items — Identifies liabilities that reduce equity value at close (accrued PTO, deferred revenue, earnout obligations).
- Customer concentration — Flags revenue risk from over-reliance on key customers.
Who Orders the QoE and Who Pays
Buyers almost always require a QoE before closing. The buyer's private equity firm or lending bank typically hires the accounting firm (Big 4 or regional). Sellers pay nothing for the buyer's QoE — but they absorb its findings.
Increasingly, sellers commission their own sell-side QoE before going to market. This costs $15,000–$60,000 depending on complexity but surfaces problems before buyers see them — giving the seller time to restate, recharacterize, or explain items that would otherwise become deal-breaking surprises.
How QoE Findings Affect Price
If the QoE reduces adjusted EBITDA by $200,000 on a business that was priced at 7x, the buyer has grounds to reduce the purchase price by $1.4 million. This is not a negotiating tactic — it's a contractual right tied to the representations the seller made in the LOI. Every dollar of EBITDA that doesn't survive QoE scrutiny is worth multiple dollars off the price.
What Sellers Should Do Before QoE
- Run your own add-back schedule and stress-test it against likely buyer objections
- Separate owner compensation from market-rate management cost in your financials
- Document non-recurring items with source evidence (invoices, board minutes, one-time contracts)
- Consider a sell-side QoE if EBITDA is above $3M or if your books are complex
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