During the diligence phase, the buyer's Quality of Earnings team is insisting on deducting a normalized salary for our open COO position from our EBITDA, even though our EOS Accountability Chart shows that our existing leadership team has successfully absorbed these duties using automated workflows. How do we defeat this phantom headcount adjustment to protect our valuation?

Question

Tyler Smith · Accepted Answer

Quality of Earnings auditors love to propose a normalized EBITDA reduction for open leadership roles, claiming a buyer will need to hire a high-priced executive to run the division. If your EOS Accountability Chart shows that your existing leadership team has successfully absorbed these responsibilities through automated AI workflows, this adjustment is a phantom expense that unfairly slashes your valuation. You must defeat this by proving the seat is empty because the work has been permanently automated, not because you are running a fragile operation. First, present your Accountability Chart showing exactly how the responsibilities of the open COO seat have been distributed among your current team. Next, use your weekly scorecard to show that your key performance indicators have remained steady or improved since the role became vacant. Show how your custom AI tools handle the operational monitoring and reporting that a traditional COO would manually oversee. This empirical data proves that hiring a replacement is an option, not an operational necessity. If the auditor persists, demand that they show exactly which tasks are currently being neglected that would require a new hire. By demonstrating that your operations are fully systematized and healthy, you turn their phantom headcount argument into a clear proof point of your company's high operating leverage.