Why Outdoor Power Equipment Dealers Should Consider a Sell-Side Quality of Earnings Before Selling

Outdoor power equipment (OPE) dealerships are experiencing a period of significant opportunity driven by strong demand from professional landscapers, municipalities, and residential consumers, as well as increasing consolidation among dealer platforms and private equity-backed buyers. However, despite healthy top-line growth, many OPE dealerships operate with financial characteristics that are not always easily understood, or fully trusted, by buyers during an acquisition process.

Unlike pure recurring-revenue businesses, OPE dealers typically generate revenue from a mix of new equipment sales, used equipment, parts, service, warranty work, OEM rebates, and seasonal promotions. This revenue mix, combined with heavy inventory requirements, floorplan financing, and seasonality, can make historical earnings appear volatile or unclear to outside acquirers. While these dynamics are well understood by owner-operators, they are often viewed by buyers as additional risk unless clearly explained and normalized.

It’s critical for business owners considering a sale to understand how their dealership will be evaluated by acquirers and how to proactively position the business to appear as attractive and low-risk as possible in a sale process.

Outdoor power equipment dealers face several operational and accounting complexities that can raise questions during diligence. Inventory levels fluctuate significantly throughout the year, OEM incentives and rebates may not align perfectly with revenue recognition, and floorplan interest expense can distort true operating profitability if not properly presented. Additionally, service department performance, technician efficiency, and parts margins are often buried within the financial statements rather than clearly separated and analyzed.

While these issues are commonplace for dealership operators, buyers, particularly institutional investors, tend to view them as risk factors that must be vetted and normalized. Without clear financial visibility, buyers may apply conservative assumptions that negatively impact valuation.

Despite strong buyer demand for OPE dealerships, failing to prepare for this scrutiny can create friction at exactly the wrong point in the sale process.

Once a Letter of Intent (LOI) is signed, buyers will almost always engage a third-party accounting firm to perform a Quality of Earnings (QofE) analysis. This is not an audit, but rather a deep dive into the sustainability and accuracy of your earnings. If a seller is unprepared, this phase can quickly become time-consuming, disruptive, and stressful.

You should expect to provide historical and current financial statements, bank records, inventory reports, aging schedules, floorplan statements, OEM rebate schedules, warranty income details, service and parts performance data, and general ledger support. If discrepancies emerge between what was presented during the marketing process and what the accounting firm uncovers, buyers may seek to retrade the deal.

This puts the seller at a disadvantage, weakens trust, and can ultimately jeopardize the transaction or reduce the purchase price.

FOCUS encourages business owners to play offense rather than defense. Increasingly, sellers of high quality OPE dealerships are commissioning a sell-side Quality of Earnings before going to market. This process typically takes four to five weeks and can be completed while working with an M&A advisor to prepare the business for sale.

Although buyers will still perform their own diligence, a sell-side QofE accomplishes several critical objectives: it validates the dealership’s true earnings power, clarifies inventory and working capital dynamics, normalizes one-time or non-recurring items, and proactively addresses areas that could otherwise raise buyer concerns.

Most importantly, it provides buyers with confidence. Reduced uncertainty leads to stronger offers, tighter valuation ranges, fewer surprises during diligence, and a higher likelihood of closing.

For OPE dealership owners considering an exit, the benefits of a sell-side QofE far outweigh the cost. While a sell-side QofE may require an investment of approximately $40,000–$60,000, removing uncertainty from the buyer’s perspective can significantly improve negotiating leverage during the LOI phase.

In competitive auction processes, that clarity can translate into additional turns of EBITDA and potentially millions of dollars in incremental transaction value. A sell-side QofE represents one of the most aggressive and effective steps a seller can take to maximize valuation and protect deal certainty.

Finally, it’s critical to work with experienced M&A advisors who can help select a reputable accounting firm with specific experience in dealer businesses and inventory-intensive models. Not all accounting firms understand the nuances of OEM programs, floorplan financing, service absorption, or seasonal working capital swings.

Done correctly, a sell-side QofE can result in a smoother diligence process, stronger buyer confidence, and a materially better outcome at closing. As George Washington once said, “The best defense is a strong offense.”

If you have additional questions, please contact Anna Brumby White at [email protected].