INSIGHT

How a Quality of Earnings Report Changes the Negotiating Dynamic Between Buyer and Seller

Craig Hamm • November 3, 2026

Services: Quality of Earnings

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Every deal starts with a number. The seller presents EBITDA, and the buyer applies a multiple. Both sides soon learn that the headline figure rarely tells the full story. A quality of earnings (QoE) report tests that number against the actual financial records. It shows which earnings will likely continue, which came from one-time events, and which depend on accounting choices.  

When one side holds a credible QoE report, the conversation at the table shifts. This article explains how a QoE report shapes negotiating power, valuation talks, deal terms, and timelines for both buyers and sellers.   

What a QoE Report Measures 

A QoE report goes beyond audited financial statements.  

• An audit confirms that statements follow accounting standards.  
• A quality of earnings analysis asks how sustainable those earnings are.

Analysts review revenue trends, customer concentration, working capital, owner compensation, and nonrecurring items. They then adjust reported EBITDA to reflect a normalized run rate. That adjusted figure often differs from the seller’s number, sometimes by a wide margin.  

How a Sell-Side QoE Strengthens the Seller’s Position 

Sellers who commission a QoE before going to market control the narrative. They find problems early and either fix them or explain them on their own terms. A buyer who discovers a revenue recognition issue mid-diligence may use it to cut the price. A seller who discloses that same issue upfront, with context, removes that pressure point. A sell-side report also supports the asking price. Buyers tend to trust figures that an independent firm has already tested. That trust shrinks the room for aggressive counteroffers. It can also draw more bidders, since serious buyers see less risk in the process. 

Timing matters too. Deals lose momentum when diligence drags on. A seller with a finished QoE report gives buyers what they need faster, and that speed keeps competitive tension alive.   “Buyers can only move as fast as their confidence in the numbers allows. When a seller hands over a report that’s already been tested by an independent firm, we’re not spending the first three weeks chasing down basic questions. We’re refining specifics. That’s a real difference in a market where deals lose their edge the longer they sit open.” – Craig Hamm, BPM Partner and Transaction Advisory Leader 

How a Buy-Side QoE Protects the Buyer 

Buyers use a QoE report to test whether the business matches the pitch. If the analysis shows lower sustainable earnings, the buyer now has a documented basis for revisiting the price. Negotiations move away from opinion and toward evidence. The report also informs deal structure. A buyer who finds customer concentration risk might push for an earnout. A buyer who spots working capital swings might negotiate a tighter peg.

Findings on tax exposure or unrecorded liabilities can shape indemnification terms and escrow amounts. Even when the numbers hold up, the buyer gains something valuable. Lenders and investors want confidence before they commit capital. A clean QoE report helps the buyer secure financing on better terms.  

When Both Sides Have a Report 

Many middle market deals now include both sell-side due diligence and a buy-side QoE. This might look redundant at first. In practice, it narrows disagreements. The two reports often agree on most adjustments. The debate then centers on a handful of specific items rather than the entire financial picture. This focus changes the tone of negotiations. The parties spend less time arguing over broad claims and more time resolving real questions. Deals close with fewer surprises and less conflict after closing. 

Working Capital & the Purchase Price 

Net working capital deserves special attention. Most purchase agreements include a working capital target, or peg. If the business delivers less working capital than the peg at closing, the price drops. A QoE report analyzes monthly working capital to set a fair baseline.  Sellers who understand their working capital trends can defend a reasonable peg. Buyers who see seasonal swings can avoid overpaying for a business that needs a cash infusion right after closing. Either way, the side with better data usually sets the terms. 

Credibility Changes the Conversation 

A QoE report adjusts numbers, and it also builds trust. Negotiations stall when one side doubts the other’s figures. An independent analysis gives both parties a shared set of facts. That shared foundation makes compromise easier because each side can see the reasoning behind the other’s position. You walk into the room ready to discuss specifics instead of defending assumptions. 

Work with BPM on Your Next Transaction 

BPM’s Quality of Earnings Services prepare sell-side and buy-side QoE reports for companies across a wide range of industries. We examine the details that affect value and explain our findings in plain language, so you can negotiate with confidence. Our professionals work alongside your attorneys, bankers, and lenders to keep your deal on track. 

Whether you plan to sell your company or acquire one, the right financial analysis can change the outcome. To learn how a quality of earnings report can strengthen your position at the negotiating table, contact us.