The core work is testing adjusted EBITDA. The analyst examines each add-back you have claimed and decides whether it is genuinely non-recurring and properly documented. Beyond that, a QoE typically looks at revenue recognition and whether income has been recorded in the right periods, customer concentration and revenue durability, margin trends and what explains them, working capital requirements through the year, and any unrecorded liabilities or related-party transactions. The output is a normalized earnings figure that may differ meaningfully from the one you presented.
A sell-side QoE, produced before going to market, has become common for a straightforward reason: it removes the buyer's most effective negotiating lever. When a buyer's accountants find surprises, the price is renegotiated downward at the point where you have the least leverage — months in, with legal costs sunk and momentum on their side. Finding those same issues yourself, first, lets you fix or explain them on your own timetable. It also shortens diligence, which reduces the risk of a deal dying from fatigue.
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Documentation is everything. Every add-back needs evidence a stranger would accept: invoices for the personal expenses, a market rent comparison if you rent from yourself, a written explanation and supporting records for one-time costs, and payroll records for family members not working in the business. Make sure revenue is recognized consistently across periods, related-party transactions are identified and disclosed, and your accounting method has not changed mid-stream without explanation. Owners who prepare this in advance regularly find that the exercise itself raises their defensible EBITDA — because add-backs they would otherwise have abandoned survive scrutiny.
No. An audit tests whether financial statements comply with accounting standards for a historical period. A quality of earnings report tests whether earnings are sustainable and accurately stated going forward, focusing on add-backs, revenue recognition, customer concentration and working capital. Buyers rely on the QoE, not the audit, when setting a price.
For most businesses of meaningful size, yes. A sell-side QoE finds the issues a buyer's accountants would find, but on your timetable and before you have lost negotiating leverage. It typically shortens diligence, reduces the chance of a late price reduction, and often increases defensible adjusted EBITDA because add-backs are properly evidenced.