How To Approach A Sell-Side QoE To Attract Buyers

If you are considering taking your business to market, help increase the value of your business by completing a sell-side quality of earnings (QoE) report.

There are 31.7 million small businesses in the United States, according to the U.S. Small Business Administration. The average small-business owner (subscription required) is 60 years old, and nearly 40% are 65 and older. The economic impact of the pandemic is prompting at least 40% of older owners to leave their businesses. They do not have the energy or resources to rebuild at this stage in their lives, a report in CNBC revealed. As the number of days a business is on the market steadily increases, it is important for sellers to take steps to make their business attractive to buyers.

What Is A QoE?

A quality of earnings report, or QoE, offers insight into what drives value within a company. It goes further past the audited financials. Unlike a financial statement audit, which focuses more on providing reasonable assurance of the soundness of a company’s financial statements, a QoE focuses more on “normalizing” a company’s earnings.

A QoE looks to remove any one-time, non-recurring expenses. For example, some of these expenses could be one-time costs for a legal settlement, startup costs for new software or costs associated with an office move. In addition, the analysis looks to identify any issues with the current accounting practices (e.g., revenue recognition). This allows buyers to better understand what the true cash flow of the business is as they discuss potential capital structures with lenders and investors.

Advantages Of Conducting A Sell-Side QoE

If you are considering putting your business up for sale, a QoE report can be a beneficial tool to streamline the sales process and help ensure a strong valuation. Most importantly, it allows sellers to be aware of any potential issues (and surprises) that a buyer’s QoE could find. By understanding any risks, it allows firms like Boxwood to help better position the business during a process and could allow for enough time to rectify certain issues. It can help sellers show buyers opportunities to make the business more attractive and can help both parties avoid surprises.

If you are ready to sell, having a QoE on hand can shorten the analysis time for buyers, allowing you to potentially divest your business quickly. It also gives buyers confidence that the numbers have been reviewed and that they can use the current EBITDA base for valuation purposes.

Hiring A Third Party To Conduct QoE

Most companies going to market are closely-held, entrepreneurial businesses that don’t always have the financial/operational structure required to handle a QoE internally. As such, you can work with your investment banker to find the right accounting firm to help conduct the sell-side QoE. Some considerations for choosing a banker and accountant include:

• Asking the accountant for a detailed scope of work, as well as a bid to make sure they plan to deliver what your business needs.

• Picking a firm that specializes in QoE services and has experience with your business is beneficial.

• Checking to see if potential firms will allow you to defer payment until closing, which can help keep costs down.

Providing buyers with another layer of security with a sell-side QoE report can give your business a leg up on the competition and help you get started on your future path in less time.