Every buyer's quality of earnings team starts in the same place. They take the ARR figure in your board pack, put it to one side, and build their own from the invoices. Customer by customer, month by month, usually for at least two years.
Then they compare the two. Where they don't match, the buyer's number wins.
What they find
It's rarely fraud. It's definitions that drifted. A professional services retainer that someone started counting as recurring. A pilot annualised at the price it would be if it converted. A ramp deal counted at its year-three value from day one. A customer who served notice in March and is still in the ARR in June, because nobody told finance.
In a business built by acquisition it's usually worse. Three acquired companies, three ways of counting ARR, and a group number that adds them together as if they meant the same thing.
What it costs
A restatement doesn't just reduce the base the multiple applies to. It changes how the buyer reads everything else in the data room. If the ARR didn't survive a rebuild, why would the NRR, the cohort curves or the pipeline? Every other number now needs proving, and every claim that can't be proved gets priced out or pushed into structure.
Structure is becoming the default answer. SRS Acquiom's 2026 study of more than 2,300 private deals found earn-outs in 24% of 2025 deals outside life sciences, up from 22% the year before. Sellers rarely collect all of an earn-out.
What to do about it, and when
None of this is hard to fix. It is slow to prove. A buyer wants to see eight quarters reported on the same definitions, and you can't produce eight quarters of history in the six months before a process.
- Write an ARR policy the CFO signs: what counts, what doesn't, how ramps, multi-year deals and usage are treated.
- Rebuild ARR from billing, not the CRM, and keep doing it monthly.
- Close an ARR bridge (opening, new, expansion, contraction, churn, closing) as part of month end, with finance.
- Tie contract to invoice to cash every quarter, and write down every exception.
Start that 18 to 24 months before a sale and the buyer's rebuild finds what your board pack already says. Start it six months out and you're explaining differences in the data room instead of preventing them.
The buyer is going to rebuild your ARR either way. The only choice is whether you do it first.
Veridian Revenue Partners helps PE-backed software businesses get their revenue function ready for a buyer's diligence, alongside their own leaders. See Exit readiness.