Quality of Earnings Prep
Sell-side readiness for owners 0–5 years from a transaction: a trailing-twelve-month scan, a Reported-to-Adjusted EBITDA bridge with the evidence attached, and books that survive a buyer's diligence instead of feeding it.
Why every unverifiable dollar costs you four to six
The core math is simple. At typical SMB multiples, every dollar of EBITDA a buyer can't verify costs you roughly 4–6 dollars of price. Buyers don't negotiate down what they can verify — they discount what they can't. Messy books don't just look bad in a data room; they are a direct, quantifiable price reduction, applied line by line to everything you can't prove.
The buyer will run a Quality of Earnings on you regardless — that's how PE and lender diligence works. QoE prep means you've already run the exercise on yourself: owner compensation normalized, add-backs documented, related-party transactions isolated, one-time items reclassed with the evidence attached. When their QoE team arrives, they find answers, not questions — and questions are where the discounts live.
Timing matters more than most owners think. In the industries consolidating fastest — HVAC, roofing, plumbing and electrical, restoration, distribution — the PE call is coming whether you're ready or not; half your competitors have already taken it. Preparation compounds: starting 12–24 months out lets clean monthly closes accumulate into a track record no last-minute cleanup can fake.
What's included
- Trailing-twelve-month (TTM) diagnostic scan across revenue, margin, and expense quality
- Reported-to-Adjusted EBITDA bridge with documented add-backs
- Owner compensation and related-party normalization
- Revenue and margin integrity review — recognition, cutoff, concentration
- Working capital analysis and NWC peg baseline
- Customer and vendor concentration analysis
- Balance-sheet and debt-like-items review
- QoE readiness report with management readout and a fix-list prioritized by valuation impact
How Kaizen runs it
The engagement follows DMAIC — the Six Sigma improvement cycle, applied to earnings quality. Define the perimeter and the deal thesis. Measure the TTM actuals. Analyze the bridge and the risks. Improve — execute the fix-list: reclasses, documentation, close discipline. Control — data-room-ready monthly closes that keep it true until close day.
A real result: a trade-services operator's bridge moved Reported $720K to Adjusted $910K (+26%), and the adjustments held under lender diligence with zero reversions — because every add-back carried its evidence. That's the standard: not a bigger number, a defensible one.
Pricing
Frequently asked questions
How is this different from the buyer's QoE?
The buyer's QoE is adversarial — it exists to justify price reductions. Ours is preparation, run to the same standard, so when their team arrives they find documentation instead of discounts.
When should we start?
Ideally 12–24 months before a process — clean closes accumulate into a track record. Ninety days is the practical minimum to build a defensible bridge and a few clean closes.
What's the actual deliverable?
An EBITDA bridge workbook, a narrative readiness memo, a prioritized fix-list, and a data-room file structure — plus the fixes themselves if we run the follow-on.
Will your adjustments hold up in diligence?
They're built to: every add-back is anchored to documents, not assertions. The bridge above survived lender diligence without a single reversion.
Related services
Find out what your books are worth
A 30-minute call and a look at your TTM — we'll tell you honestly whether a buyer's QoE would find problems, and which ones move price.
Or call us directly: +1 786 789 0969