Your Buyer Is Running a Play. You Don't Know the Rules.

You built a great business. You're ready to sell, and you know how businesses are valued:

Valuation = EBITDA x Multiple

But here's what most sellers find out too late: The buyer has a playbook. You don't, but there are steps a seller can take to level the playing field.

Many sellers don’t try to maximize their EBITDA. They just focus on the Multiple. When they prepare to sell their company, they take the EBITDA from their Quickbooks, add back owner’s compensation and personal expenses and believe that is their Adjusted EBITDA. It isn’t.

So, what is best practice? It’s simple. Do what Private Equity does. PE firms are masters at buying and selling companies. These firms always do a Quality of Earnings on their companies, not only at purchase, but also when they go to sell.

PE-owned companies are audited, have top-notch CFOs and accounting teams, and have zero personal expenses flowing through the business. So why do PE firms perform a Quality of Earnings analysis? To maximize their market-adjusted EBITDA.

What Is a Quality of Earnings?

A Quality of Earnings (QofE) is a line-by-line review of your revenue and expenses. It finds the one-time costs and non-core business expenses hiding in your P&L. Those become "add-backs." Add-backs increase your adjusted EBITDA. Higher EBITDA means a higher sale price. I once saw a PE portfolio company that had three pages of add backs.

Two Goals. Opposite Outcomes.

If the buyer is doing a QofE anyway, does a seller really need to do one? The answer is a resounding “Yes”! The buyer's QofE is designed to lower your number; the seller’s QofE is designed to raise it.

• Buyer's goal: Validate your EBITDA, find risks, chip away at price
• Your goal: Maximize adjusted EBITDA, defend every dollar, close at the number you agreed to

I have been working on M&A transactions for over 20 years. Not once has a buyer called the seller and said: "We found add-backs you missed. You should add this back to get more value."

Every dollar they find goes into their pocket. Not yours. That’s low hanging fruit that sellers leave for buyers.

What Happens If You Don’t Have a QofE

One of our first clients at Embarc told us they had clean books, an experienced fractional CFO, and a simple business. They skipped the seller's QofE.

After the LOI was signed, the buyer's team arrived. They scoured the books looking for items to discount. Ten thousand here. Thirty thousand there. Fifty thousand somewhere else.

The seller’s $2.9 million EBITDA became $2.5 million. At their deal multiple, that was millions of dollars lost. The deal nearly fell apart.

That experience changed how we operate. We now do a seller's QofE on every deal we take to market.

The ROI Is Hard to Argue With

Even a modest QofE pays for itself many times over.

• Find $50K in hidden add-backs at an 8x multiple = $400K in enterprise value
• A lower middle market QofE typically costs $30K–$50K
• That would be an 8–13x return before the marketing process is underway

In our experience, the additional add-backs are in the six to seven figure range for middle market companies, so the ROI is actually much higher.

According to Axial's 2025 Dead Deal Report, over 21% of deals fall apart after LOI due to EBITDA discrepancies. A seller's QofE dramatically cuts that risk.

Three Tangible Benefits of the QofE

A QofE drives value in three important ways throughout the sales process:

1. The preparation stage: The seller’s QofE is one of the first things a seller should do as they prepare to exit. If EBITDA is the main valuation benchmark, you need to know where your starting point is today. A QofE will let you know if you will hit your number today and if not, what you need to do to get there.
2. The marketing stage: Maximize your EBITDA. Every add-back is multiplied by your deal multiple. A Seller’s QofE also signals a high-quality deal with serious intent.
3. The diligence stage. The seller’s QofE prepares you for the buyer’s diligence and dramatically increases the probability to close. No surprises. No re-trades. No sleepless nights.

The Bottom Line

You have spent years building your business. Don't give up millions in the final innings because the buyer ran their play and you didn't run yours.

The seller's Quality of Earnings is the highest-ROI investment you can make before a sale.

If you want to learn more about how professional services firm owners prepare for an exit, consider these next steps:

• Connect with Jay Jung on LinkedIn
• Apply for membership in Collective 54
• Subscribe to Collective 54 Insights