Quality of Earnings: Why Buyers Pay More for Certainty (5 Minute Read)
By Trent Lee — The CEO’s Sage
With concepts adapted from Patrick Ungashick, CEO of NAVIX Consultants
One of the most common questions I hear from business owners who are thinking about an eventual exit is this:
“What exactly is a Quality of Earnings report—and do I really need one?”
It’s a fair question. And it’s one Patrick Ungashick, CEO of NAVIX Consultants, has done an excellent job of clarifying over the years. His work around Quality of Earnings (QoE) has become foundational in the exit planning world—and for good reason.
Because here’s the truth most owners don’t hear early enough:
Buyers don’t pay for growth. They pay for confidence.
And confidence shows up in one place first—your financials.
Quality of Earnings: What It Really Means
At its core, Quality of Earnings answers one critical buyer question:
“Can I trust that these earnings are real, repeatable, and sustainable?”
QoE isn’t about whether your numbers are technically correct. It’s about whether they reflect the economic reality of your business.
Patrick describes it well: not all earnings are created equal. Some are durable and predictable. Others are inflated by timing issues, one-time events, aggressive accounting, or owner-specific decisions that won’t survive a transition.
Buyers know this—and they price accordingly.
Why This Matters in the Value Builder Framework
Within the Value Builder System, Quality of Earnings sits squarely inside the Financial Performance Driver.
And here’s the key insight many owners miss:
The multiple a business receives is a direct reflection of the risk a buyer is willing to take on.
More uncertainty = lower multiple.
Less uncertainty = higher multiple.
A third-party QoE report reduces uncertainty by independently validating:
- Revenue recognition practices
- Expense normalization
- Non-recurring or owner-specific items
- Cash flow alignment with earnings
- Sustainability of margins and profitability
This isn’t about impressing a buyer. It’s about de-risking the deal.
Why Smart Sellers Do QoE Before Going to Market
Historically, buyers commissioned QoE studies during due diligence—and then used the findings to retrade price or terms.
Today, more sophisticated sellers are flipping the script.
By commissioning their own seller-side QoE, owners are able to:
- Validate and defend their earnings story
- Identify and fix issues before a buyer finds them
- Increase credibility and transparency
- Preserve leverage in negotiations
- Support a higher, cleaner valuation
In other words, they stop reacting—and start controlling the narrative.
QoE vs. an Audit (Aren’t They the Same???)
This is another area where Patrick’s distinction is important.
- An audit confirms whether financial statements follow accounting rules.
- A QoE evaluates whether earnings are meaningful, sustainable, and transferable to a new owner.
Many private companies don’t have audits—and don’t need them. But a QoE speaks directly to what buyers care about most: future risk.
Final Thought
Strong financial performance matters—but credible financial performance matters more.
When your numbers are validated by an independent third party, buyers stop wondering “What’s behind the curtain?” and start focusing on growth, opportunity, and upside.
That shift—from uncertainty to confidence—is what drives higher multiples.
As Patrick has long taught, Quality of Earnings isn’t just a diligence step.
It’s a
value creation tool.
And within the Value Builder framework, it’s one of the most powerful ways to turn performance into price.
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Trent Lee helps business owners increase enterprise value by aligning execution, leadership, and financial clarity using the Value Builder System, Line-of-Sight, and NAVIX-aligned exit planning strategies.
Learn more atwww.compassleadershipadvisors.com or connect on
LinkedIn:
https://www.linkedin.com/in/trentrlee/

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