Page 18 - NBIZ Magazine August 2023

Mitigate buyer concerns: Buyers often have concerns pressure on the business owner and his or her team once
about the sustainability and quality of a company's the sale process begins.
earnings. By conducting a QofE analysis, the selling Perhaps the bottom line is that by proactively getting
company can proactively address these concerns. It allows their own seller QofE, business owners reduce their risk,
the company to explain the key drivers of its earnings, protect their leverage in the negotiation process with
demonstrate the sustainability of revenue streams, and potential buyers, and support getting the maximum
provide supporting evidence for its financial performance. potential value for the company at a sale. Given all the ad-
This mitigates buyer skepticism and facilitates a smoother vantages, at this point, most of our exit planning clients
transaction process. now secure their own QofE study as one of the steps to
prepare for sale.
Maximize company valuation: A robust QofE analysis
provides buyers with a clear understanding of the How is a QofE Study Different from an Audit?
true financial performance and potential of the selling Quality of earnings (QofE) and audit are related
company. By demonstrating the quality and reliability concepts but have distinct meanings and purposes.
of earnings, the company can maximize its valuation Quality of earnings refers to the assessment of the
and potentially attract more favorable offers. A strong reliability and sustainability of a company's reported
earnings profile makes the company more attractive earnings. It focuses on evaluating the accuracy and integ-
to potential buyers and increases its bargaining power rity of the financial information disclosed by a company,
during negotiations. specifically its income statement, to determine the under-
Get a jump start on organizing the financial data and lying economic reality. QofE helps buyers understand
records that will be necessary to provide potential buyers whether the reported earnings are a true reflection of the
during due diligence, which saves time and reduces company's performance and financial health.
On the other hand, an audit is a formal examination
and verification of a company's financial statements and
related records by an independent third-party auditor. The
purpose of an audit is to provide an opinion on whether
the financial statements present a true and fair view of the
company's financial position and performance per applica-
ble accounting standards. The audit process involves con-
ducting tests and procedures to gather sufficient evidence
about the financial information, assessing the company's
internal controls, and issuing an audit report with an
opinion on the reliability of the financial statements. The
primary objective of an audit is to enhance the credibility
and reliability of the financial statements for the benefit of
shareholders, stakeholders, and regulatory bodies.
Many privately owned companies do not have audited
financial statements, and most have had no reason to do
a QofE study before contemplating a sale of the business.
Business owners should consult with their advisors about
the need for an audit and/or a QofE study before pursuing
a sale of the business.

Overall, conducting Conclusion
Overall, conducting a QofE study as part of preparing
a QofE study as a company for sale helps build credibility, transparency,

part of preparing and trust with potential buyers. It enables the selling
company to address any concerns, enhance financial
a company for sale reporting, and optimize its valuation in the transaction
process. N
helps build credibility, Patrick Ungashick is the CEO and founder of NAVIX

transparency, and trust Consultants. He is nationally recognized as the authority
on exit planning for business owners. Patrick is also the
with potential buyers. author of two books to help owners get ready for their
exit: Dance in the End Zone, and the award-winning A
Tale of Two Owners. Patrick can be reached via email at
pungashick@navixconsultants.com.

18 NBIZ ■ August 2023