Understanding the quality of earnings and working capital requirements of a business is a key component of assessing value in a sale process.
Sell-side or buy-side quality of earnings (QofE) is a part of financial due diligence that involves the analysis of an organization’s financial information by an independent party. This is a necessary step during the transaction process because it helps assess the continuity of cash flows and working capitals, which is a key consideration for how a third party will value a business.
The quality of earnings report highlights the key aspects of your business for a specified historical period. These key aspects include:
- Normalized level of EBITDA and the addbacks to bridge from reported EBITDA to adjusted EBITDA
- Fluctuations in annual and monthly financial information
- Revenue and gross margin by product, customer or distribution segments
- Operating expenses and employee analysis
- Key balance sheet highlights
- Normalized levels of working capital needed to operate the business
Choosing a Third Party to help With Your Quality of Earnings
Whether you know it or not, you have been preparing for a sale for years. Understanding your value prior to going to market gives the seller bargaining power. It can also help keep the deal on track and on time by identifying pitfalls well in advance. One of the best places to start with the sale of your business is by hiring a third-party vendor to provide you with a quality of earnings report.
Once you decide to engage with a third-party service provider, you can begin to solicit offers. When you work with Eide Bailly, you'll work with accredited professionals, including Certified Merger and Acquisitions Advisors and Certified Public Accountants who dedicate 100% of their time to due diligence and quality of earnings projects.
When choosing a provider, it’s important to ask questions beyond cost, such as their experience, their transparency during the engagement, the quality of their product, the intended timeline for their process and more.
As the QofE process proceeds, we encourage our clients to stay involved. Your involvement gives you the opportunity to ask questions and better understand not only the due diligence process but also deal options, value points and the final deliverable.
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What Our Clients Say
“The Eide Bailly quality of earnings team was great to work with – the first engagement that we worked on together was very complex from an accounting perspective and we would not have been able to complete the sale of the business without their support.”
“We would recommend the Eide Bailly team to any seller … It’s a great investment and will result in achieving the highest value possible for the business.”
In my opinion the most important members of the merger/ acquisition, other than the internal management team, is a very knowledgeable CPA firm and legal team. Eide Bailly’s team exceeded our expectations and delivered just as they’d promised."
Why Choose Eide Bailly?
- Accredited professionals, including Certified Merger and Acquisitions Advisors and CPAs
- A team 100% dedicated to due diligence and quality of earnings projects
- Specialists well versed in merger and acquisition advisory, tax, valuation, technology and risk management
- Objective, timely and cost-efficient services
- Backed by a Top 25 CPA firm
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❯❯❯GUIDE
Step by Step Guide to Sell-Side Quality of Earnings
There are a lot of steps when it comes to due diligence and quality of earnings. We’ve developed a step-by-step guide to help you through it.
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If you’re planning on selling or buying a business, QofE due diligence is an incredibly prudent and necessary next step, but it’s not a process that you should do alone.