What a focused buy-side QoE delivers

If you're evaluating a deal in the $1-5M range, you've probably run into this: the seller's broker sends over a recast P&L with $200K+ in add-backs, a healthy adjusted EBITDA, and a valuation built on top of it. Some of those adjustments are legitimate. Some are aggressive. And a few might not survive your lender's underwriting. The challenge for searchers at this deal size is that the standard options for verifying earnings quality don't always fit. A full QoE from a national or regional firm runs $25,000-$50,000+, which is hard to justify on a $2-3M acquisition. But going in without independent diligence means you're relying on the seller's numbers and your own gut check to underwrite six- or seven-figure debt. Where seller add-backs break down Most sellers aren't being dishonest - they're just including everything they can think of without considering whether a buyer's accountant or SBA lender will accept it. The most common issues in seller recasts: 1. Owner compensation normalized to an unrealistically low replacement cost. If the seller is paying themselves $250K and the recast assumes a $60K manager can replace them, that gap needs scrutiny. What does the role actually require, and what does market-rate replacement look like for this industry and geography? 2. Personal expenses included as add-backs without clear documentation. Family cell phones, personal vehicles, travel that's partly personal -- these are valid adjustments when they're documented, but they need supporting evidence, not just a line item on a spreadsheet. 3. One-time expenses that aren't actually one-time. A "non-recurring" legal expense that shows up in two of the last three years isn't non-recurring. Same with "one-time" repairs on aging equipment that will need the same maintenance under new ownership. 4. Revenue quality that doesn't get examined. Add-backs get all the attention, but revenue composition matters just as much. How much is recurring vs. project-based? Is there customer concentration risk? Are there contracts or is it all transactional? A business with $3M in revenue and 40% coming from two customers has a different risk profile than one with 200 accounts. What a focused buy-side QoE delivers The deliverable is an independent adjusted EBITDA and SDE analysis with every adjustment documented and pressure-tested. Specifically: Every seller add-back gets verified against source documents -- bank statements, credit card statements, tax returns, payroll records. Add-backs that don't hold up get removed or reduced. The result is an adjusted earnings figure you can actually underwrite against. Owner compensation gets normalized using industry benchmarks for the actual role, not the seller's optimistic estimate of what a replacement would cost. Revenue gets broken down by type, concentration, and trend. You walk away knowing what portion of revenue is reliable and what portion carries risk. Working capital gets normalized so both sides have a baseline for the peg negotiation. The output is formatted for SBA underwriting -- DSCR analysis, clean schedules, supporting documentation. Your lender gets a package they can work with, not a stack of spreadsheets they have to reconstruct. When it makes sense and when it doesn't A buy-side QoE makes the most sense when the seller's add-backs are material to the valuation -- typically when adjustments represent 30%+ of the reported EBITDA. If the add-backs are small and straightforward, you might be fine doing the diligence work yourself or with your accountant. It also makes sense when you're financing with SBA and your lender wants independent verification. Some lenders will accept a focused QoE from an independent advisor; others require a CPA firm. Worth confirming with your lender early. For most $1-5M acquisitions, a targeted engagement runs $8,000 to $15,###-###-#### significantly less than a full-scope firm engagement, focused specifically on the adjustments and revenue quality that drive the valuation. I work with searchers and independent sponsors on buy-side diligence for lower-middle-market acquisitions. If you want to see what a buy-side QoE deliverable looks like, I can share a sample report via email. Also happy to answer questions about what the process involves or talk through whether it makes sense for a specific deal you're evaluating. Preston Victory, Vertex Advisory redacted