Guidance on QofE

December 12, 2024

by a searcher from Portland State University in Seattle, WA, USA

Hello world! I am new to this community and excited to start this journey.

I was wondering if you had thoughts/recommendations around:
1. When is a QofE needed? Are there instances when you don’t require it?
2. Do you have recommendations for providers that do QofE?
3. What should I look for when vetting a QofE provider?
4. What are the price ranges I should expect?

Thanks everyone in advance!

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Reply by a searcher
from Harvard University in Cambridge, MA, USA

1. I insist on it more and more, but you may not always need the full QofE. There are two main components - the databook/analysis and the report. I would always get at least a databook to get an external/professional set of eyes on the numbers. I find that QofE providers are particularly helpful in understanding NWC, and in fact they will often pay for themselves in NWC negotiations. You may not need the full written report if your lenders don't require it, though it does help a lot with investors and you learn about the business yourself as you read it. The way I see it, if you're going to spend millions on a business, you should spend some money to make sure you get it right.
2. I've had very good experiences with Kalos (Canadian firm, but they do work on US deals). KNAV is also very supportive of the community.
3. It depends on your objective, but I would say credibility is important - particularly if banks/investors require it or will see it. For example, even if you're not going with a big 4 firm, it can't hurt if the people at the firm you're going with were ex-big 4. I once passed on a Nigerian firm people told me did "good work for cheap" because I felt nobody would trust it (accurately, as it turned out, since a month later they got indicted by the SEC).
4. You can get decent work done starting around $8-10K for the databook, then an additional $10-15K for the full report. It goes up from there and you can pay $40-50K or more for a full QofE if you want a "brand."

Reply by a searcher
from University of Virginia in Simi Valley, CA, USA

1) You may want/need to use a QOE when a combination of your skills/experience and time available is inadequate. You always want to perform QOE by yourself or retain an outside party. In some situations, you may be able to identify issues without hiring experts by simply cross-verifying numbers from financial reports, tax filing, and banking statements. There can be some discrepancies between tax filings and financials if they are on an accrual basis (which they should be as you buy a business). However, all cash-based numbers should match. Follow the money (cash).

2) Many vendors advertise on this forum, and others may provide good referrals. Remember that good firms are very busy and don’t advertise much, as they have a lot of recurring business and get a lot of new business through referrals.

3) There are three items to consider. First, the service provider's verified track record of providing useful and actionable reports for deals similar to yours. Second, the specific individuals performing your QOE and their credentials and track record. Third, after interviewing them and seeing sample reports, ask yourself if you would understand their report for your deal and could use it to negotiate a better (not necessarily price-wise) deal or walk away for a good reason.

4) Everything is negotiable.

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