A QoE report is not an audit of whether the numbers add up. It is a test of whether the EBITDA a seller is asking a multiple for is the EBITDA a buyer will actually keep.
Short answer
A quality-of-earnings (QoE) review tests whether a target’s reported and adjusted EBITDA reflect the cash the business will genuinely keep producing after closing, not just whether its financial statements are internally consistent. It re-examines every add-back the seller has proposed, every recurring-versus-non-recurring classification, and every related-party or off-market item baked into the numbers — because a dollar of overstated EBITDA is typically worth several dollars of purchase price once it is run through the deal multiple.
No single statute defines “quality of earnings.” It is an accounting and valuation discipline performed by an accountant engaged for the deal, not a legal filing or a test any Canadian statute sets out — which is exactly why the review has to be commissioned, not assumed. In this hub the same underlying failure shows up in at least three distinct shapes: a “non-recurring” add-back that recurs every year in different clothing, an EBITDA credited with a saving only the buyer’s own network can realize, and compensation or related-party terms priced off what an arm’s-length party would actually charge.
Whether a specific add-back survives review turns on two questions: can it be tied to a fact pattern that genuinely will not repeat, and is the party proposing it entitled to the value it represents? A synergy that exists only inside the strategic buyer’s own distribution network does not belong in the target’s own standalone EBITDA. A related-party expense that is being fixed before closing — a market lease signed pre-closing, say — is a one-time true-up, not evidence the seller was hiding cost. The review has to separate the two.
See it decided in the seven-years-of-non-recurring add-back file, the buyer-synergy EBITDA credit file and the owner-salary normalization file.
A 30-minute call is enough to tell you whether your numbers hold up.
Canadian small-business transaction data is not published anywhere, so most valuations in this country quote an American benchmark. The Deavo–Treadstone Acquisition Index is a daily record of Canadian listings built to replace that: asking-price distributions by province and city are published now, and days on market, departure rates and asking-to-sale spreads follow as the series lengthens. Leave an email and we will tell you as each measure lands.
No pitch, no listings. One email when the first report lands.
