A good part of my own work as a Registered Business Valuer involves preparing the kind of numbers a Quality of Earnings review is designed to test. It is worth understanding what that process actually looks like, because more buyers are including this in their due diligence questions more now than at any point I can recall.
I recently read William Buck’s 2026 Dealmaking Insights report, drawing on Australian transaction data. I completely agree when he notes that buyers and financiers are taking longer to complete deals, and that extended due diligence periods reflect a sharper focus on the quality and sustainability of earnings and working capital needs. Additionally, I find attention is being paid to customer concentration, supplier risk, and management depth.
Separately, a Pitcher Partners’ Dealmakers report, produced with Mergermarket from a survey of sixty active Australian dealmakers, found that opinions on value remain the single most common deal-breaker in Australian mid-market transactions, even as deal volume and value both apparently grew through 2025. (Although, many broker specialists could dispute that)
Those two findings sit together neatly. Deals are not falling over because buyers and sellers cannot agree on a multiple. They are falling over because they cannot agree on what the multiple should actually be applied to.
Present due diligence does not simply check that a set of accounts adds up. It tests whether the earnings figure being sold, usually a normalised EBITDA, genuinely reflects what the business will keep producing once the current owner is gone. That means examining non-financial information just as formally as financial.
If two businesses report identical EBITDA on paper, and for example one of them has fifteen add-backs behind that number while the other has three, are they actually the same business?
Similarly, if one has significant recurring revenue, has invested in training, in systems and processes and has both supplier customer relationships in the bag, are they actually the same business?
They are not, and a buyer’s Quality of Earnings investigations specifically find that difference. An add-back for a genuine one-off legal settlement is a very different thing to an add-back for the owner’s overseas conference, the family car lease, or wages paid to a relative no longer working in the business. Evidence in the form of systems, processes, relationships, is not comprised of opinion; they are facts that get investigated.
This is precisely the discipline we apply when we prepare a valuation in the first place. A normalised EBITDA figure is only useful if it can survive non-financial and financial scrutiny. All our reports are written with the assumption that months after someone whose job it is to find fault in the report will be reading it.
An add-back that cannot be defended in one sentence will not survive a Quality of Earnings question. An add-back that can be explained, from your working paper, almost always does.
For a business owner planning a sale in the next year or two, the practical lesson is to prepare as though a sceptical buyer’s adviser will read it line by line, because increasingly, that is the fact. Getting your price justification is more difficult to defend if you have relied on hypotheticals, the promise of future revenue, or limited investigations. Rather than defending your price during due diligence, what keeps a negotiated multiple intact, is a defendable, unbiased and independent opinion of value.
Kevin Lovewell is a Registered Business Valuer with over thirty-five years of experience in business valuation and brokerage. This article is general commentary and does not constitute financial or legal advice specific to your circumstances.
If you are planning a sale and want your asking price to hold up under a buyer’s scrutiny, get your position tested before a buyer does that for you. Contact Kevin Lovewell directly on 1300 551 757.
