When to engage the QofE.

Five business days from LOI to QofE engagement. Five.

The QofE is not a back-office workstream. It is the document that anchors the working capital peg, the customer concentration story, and the LP's commitment package.

If the QofE is engaged in week three of post-LOI diligence, the report lands two days before the financing commitment is due. By then, the LP has already calibrated to your draft numbers. Discoveries in the final QofE either drive a price re-trade or a closing slip. Neither is the right outcome.

The QofE is the document that defines the price.

The headline EBITDA on the CIM is rarely the headline EBITDA on the purchase agreement. The QofE is what normalizes the difference. Owner add-backs, related-party transactions, non-recurring expenses, one-time benefits, working capital adjustments, customer-specific revenue recognition issues: all of these are normalized through the QofE.

The normalized EBITDA, after the QofE, is what the deal price is calculated against. If the seller's headline EBITDA was $8M and the QofE normalizes to $6.5M, the deal is being done at a different multiple than the seller has in their head.

That re-pricing conversation has to happen. The question is when.

If the QofE is engaged on day three of the LOI, the preliminary findings are available by week three. The independent sponsor can have an early conversation with the seller: "Here is what we are seeing. The owner is taking $400K in personal expenses through the business. The $500K of expedited shipping in 2024 was a one-time event tied to a specific customer recovery. The compensation for the founder's son in operations is above market."

That conversation, in week three, is a working conversation. The seller's lawyer is not yet in defense mode. The seller's banker is not yet driving the agenda.

If the QofE is engaged in week three, the preliminary findings are available in week six. The financing commitment is due in week eight. The seller and the seller's advisors learn about the QofE findings two weeks before close.

That is the worst possible timing. The seller is exhausted. The closing is imminent. Any QofE finding that suggests a price change feels like an ambush.

Day 1: LOI signs. Day 3: QofE provider engaged. Day 10: QofE provider begins fieldwork. Day 21: preliminary findings. Day 28: working conversation with the seller. Day 35: final QofE report. Day 42: working capital peg set, financing finalized. Day 56: definitive agreement signed.

The QofE is the deal book. Read it twice before you negotiate anything.