QofE or not QofE?

searcher profile

September 10, 2024

by a searcher from Columbia University - Columbia Business School in New York, NY, USA

I am negotiating an LOI for what I think is a simple business at ~$1.5M valuation.

Is QofE necessary? What would be the main difference in output / risk diligence between a lesser scoped CPA diligence?
Apart from the differences in costs and scope of work, how necessary is it in a small deal?

Some details about the business: B2C service business with all revenue coming from credit cards. Expenses are 90% rents and employees (all on 1099).

Thanks for all your help!

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commentor profile
Reply by a professional
from Harvard University in Atlanta, GA, USA
^redacted‌ TWO THINGS I notice right away. I won't answer your yes/no QoE question because you're smart - you'll make the right decision

(1) All the M&A advisors are saying you don't need QoE, they're the same as the broker on your deal, less diligence is better for Brokers.

(2) If you were trying to sell someone a failing, fraudulent business, this is one of the best excuses I've heard in 15 years doing this: "health issues of the seller and the broker says its too much work for them and thus a no go if QoE is involved in the deal."

That's how I'd sell you a car with a bad engine and transmission...No time to take it to a mechanic. Other offers waiting...all B*llshit.

Do you have $1.5M to lose? Else, do a QoE even if it's a cheap/narrow scope one vs. our full scope QoEs.

I'm more interested in keeping you out of the poor house than selling my services (Thanks ^redacted‌ & ^redacted‌)
commentor profile
Reply by a professional
in Toronto, ON, Canada
Thanks ^redacted‌. QofE is a basic ingredient of a financial due diligence exercise, and should not be confused as a separate piece of work, as typically a FDD report includes QofE, NWC and Debt along with other key observations on the Target Company. I would err on the side of doing a DD than not having one no matter what size the deal is of (even if it's a clean report). If done thoroughly, the FDD deliverables can act as a reference point for what it takes to keep financial/accounting process organized post-acquisition in many cases. It looks like you are spoilt for choices here, however, would love to network and connect to see if my experience could be leveraged at any point of your evaluation of the Target (pre or post deal). Thanks, Kapil Sukhija redacted
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