Should I get a quality of earnings report before selling my business?

Some owners hire an accountant to prepare their own quality of earnings report before they list. The idea is simple: see the business the way a careful buyer will, and deal with what turns up while you still control the timing. It is not required, and it is not right for every sale. Here is how to think about it.

What it can do for you

A sell-side report shows where the records are thin, which adjustments are well supported and which will invite questions. It lets you correct errors quietly and explain odd results with documents ready. Buyers who see an organized package often move through diligence more smoothly, and a lender may find the package easier to follow.

What it will not do

A buyer, and usually the buyer’s lender, will want to test the figures. Some will rely on your report with their own checks; others will start again. The report is also not a price, and it cannot make weak results look stronger. Remember, too, that it records what is true, including facts you may not like.

Questions to weigh before commissioning one

• Are your records organized enough for outside review?
• Do you already know of issues you would rather fix first?
• How soon do you expect to list?
• Would the cost be worth the time it may save?
• Who will own the report and who may share it?

Working with your own advisers

Ask your accountant whether a full report, a smaller review of one area or simply tidier records would serve you best. Ask your lawyer how the report’s findings could affect what you promise in the agreement. Keep the work consistent with what you tell buyers, since a gap between the two causes trouble later.