FAQs
Here you can find answers to frequently asked questions.
What is a QoE and why is it needed?
- Core Purpose: It analyzes a company’s financial data to determine the sustainability, accuracy, and repeatability of its historical profits.
- The Main Metric: It calculates Normalized EBITDA, which reflects the true operating performance under new ownership.
- Vs. a Financial Audit: An audit checks if financial statements comply with GAAP/IFRS accounting rules. A QoE digs deeper into the underlying economic reality to see if those numbers will continue in the future.
Costs, Timeline, and Validity
- Average Cost: Typically ranges from $12,000 to $75,000+, depending on the revenue size, data cleanliness, and complexity of the business.
- Timeline: It usually takes 3 to 4 weeks to complete the analysis and issue the final report.
- Expiration: A QoE is a snapshot in time; it usually stays fresh for about 2 to 3 months before a buyer requests a "roll-forward" amendment to include the latest months.
Adjustments and Net Working Capital (NWC)
- Add-backs: These are expenses added back to earnings because they won't recur under a new owner.
- Common Examples: Excess owner compensation, personal travel/vehicles run through the business, one-time legal settlements, or non-recurring tech implementation costs.
- Net Working Capital Peg: A key feature of a QoE is determining the normal level of cash, inventory, and accounts receivable needed to run the business daily, preventing the seller from draining working capital before closing.
Who pays for it and when?
- Sell-Side QoE: The seller pays for it before putting the company up for sale. It helps find red flags early and defend the asking price.
- Buy-Side QoE: The investor or buyer pays for it after an LOI (Letter of Intent) is signed. It serves as deep-dive due diligence to protect their investment.