Quality of Earnings (QoE) – What Does It Mean When Selling a Business?

Many sellers assume a high EBITDA figure automatically means a high price. But professional buyers – especially private equity firms and larger strategic buyers – rarely settle for the number alone. They commission a Quality of Earnings analysis (QoE) that examines how solid and repeatable the earnings really are.

What is a QoE analysis?

A QoE is an independent review – often carried out by an accounting or advisory firm on the buyer's behalf – of the company's historical results, typically the last 2-3 years plus the trailing 12-month period. The purpose is to identify the real, sustainable earnings, not just the reported figure.

What does a QoE analysis look for?

One-off items

Are there revenues or savings included that won't recur – e.g. a single large order or a one-time grant?

Timing/accrual issues

Are revenues and costs recorded in the right period, or have the numbers been "polished" around a fiscal year-end?

Customer concentration and contract quality

How much of revenue comes from a few customers, and how solid are the underlying contracts?

Working capital and cash flow

Does the reported earnings match the actual cash flow, or is there a systematic difference worth investigating?

QoE vs. regular due diligence

QoE is a subset of broader financial due diligence, but more focused: while financial due diligence often checks compliance and history broadly, QoE digs into the quality and predictability of the earnings themselves.

How to prepare as a seller

If you've already prepared a normalised EBITDA statement, you're well ahead. Also consider commissioning a Vendor Due Diligence – your own QoE, before the buyer does one – so you know your own weaknesses before a buyer finds them.

Frequently asked questions

Is a QoE analysis necessary for all sales?

No. For smaller deals it's often skipped. But the larger the deal, and the more professional the buyer (especially private equity), the more likely you are to encounter a QoE.

Who pays for a QoE analysis?

Normally the buyer, since they commission it. But if you choose to do a Vendor Due Diligence ahead of the sale, you pay for it yourself — in return, you stand stronger in the negotiation.

Can a QoE analysis lower my sale price?

Yes, if it uncovers one-off items or incorrect timing that artificially inflated your EBITDA figure. Your best defence is having your numbers in order before listing the business.