It is the same analysis. What differs is who pays for it, what they are afraid of, and therefore what the report has to be built to withstand. Getting the direction wrong wastes the work entirely.
The 2 directions
A sell-side quality of earnings is run by the seller, on themselves, before a buyer arrives. Its purpose is to find every adjustment a buyer would find, and evidence it first.
A buy-side quality of earnings is run by the buyer, on the target, usually under exclusivity. Its purpose is to test what the seller has presented and to establish what the business genuinely earns.
Same tests. Opposite incentives. And critically, different consequences for what the report finds.
| Sell-side | Buy-side | |
|---|---|---|
| Commissioned by | The seller | The buyer |
| Run on | Yourself | The target |
| Timing | Before a process starts | Under exclusivity |
| Purpose | Protect price and pace | Protect capital |
| Data access | Complete | What the data room contains |
| Extra scope | None | Management questions, data-room review, findings memo |
| From | $4,500 | $7,500 |
What changes in the scope
The core is identical: a normalised EBITDA bridge, revenue quality, a working capital level by month, and net debt including debt-like items.
Buy-side adds 3 things and they are the reason it costs more. First, you are working from a data room rather than a ledger, so a meaningful part of the effort goes on establishing what is missing. Second, there is a management questions process, which is iterative and unpredictable. Third, the output is a findings memo written to support a decision, not a document written to be handed over.
Sell-side is a rehearsal. Buy-side is the exam. The questions are the same and only one of them lets you retake it.
Why sell-side pays for itself
The arithmetic is uncomfortable and simple. Under exclusivity you have the least leverage you will ever have: the process is closed, the other bidders have gone, and time pressure is entirely on you.
Every adjustment found at that point is a price conversation you cannot walk away from. On a business valued at a 5x multiple, one $80,000 adjustment found late costs $400,000 of enterprise value. A readiness review starts at $1,750, which is less than the first chip on almost any deal.
There is a second benefit that gets less attention: pace. Deals die of delay more often than of disagreement. A seller who can answer a normalisation question the day it is asked keeps a process moving.
Why buy-side is not optional
A seller’s report is a good-faith document produced by someone with an interest in the answer. It is genuinely useful and it is not a substitute for your own work. The specific things a buy-side review catches are customer concentration disclosed but not quantified, working capital presented at a favourable month, and deferred revenue treated as earned.
The working capital number is worth singling out. It is the most disputed figure in most transactions and it is the one most often established late, when there is no time left to argue.
When to run each
- Sell-side readiness review: 18 to 24 months before you intend to sell. Found early, an issue gets fixed. Found late, it gets priced.
- Sell-side full report: as the process opens, so it can go into the data room on day one.
- Buy-side: as soon as exclusivity begins, and before any funding condition is waived.
Our boundary
We are not a licensed CPA firm and we do not audit. A quality of earnings report expresses no opinion on whether the accounts are correct. If your lender or counterparty requires an audit or an approved-list provider, that is a different engagement and we will say so first rather than last.
One thing to do this week
Whichever side you are on, write down the 12-month EBITDA and list every item in it that would not recur under new ownership. If that list takes more than an hour, the other side is going to build it for you.