The buyer's Quality of Earnings firm is aggressively challenging our owner compensation normalization and above-market related-party facility lease add-backs. How do we substantiate and defend these EBITDA adjustments to protect our purchase price?

Question

Tyler Smith · Accepted Answer

Every dollar a buy-side Quality of Earnings (QoE) auditor successfully strips from your EBITDA adjustments reduces your enterprise value by your transaction multiple. If you are selling at 7x EBITDA and the auditor knocks out a $100,000 add-back, they just cut your purchase price by $700,000. Auditors attack owner compensation and related-party leases first because these are subjective, discretionary areas.

To defend owner compensation adjustments, rely on objective organizational mapping rather than personal assertions. Use your EOS Accountability Chart to demonstrate exactly which seats you occupied. If you operated as Visionary, Integrator, and Head of Sales, do not claim that a replacement Integrator can be hired for $150,000 while you were pulling $600,000. Produce third-party executive compensation studies (such as Radford or Mercer data) specific to your industry, revenue size, and geographic market. Present job descriptions and market benchmark ranges for the seats that will actually need to be filled post-close. If you already have an operational Integrator running the day-to-day Level 10 Meetings and hitting Scorecard measurables, show that your operational role was minimal, making the full replacement cost add-back clean.

To defend related-party lease add-backs, remove personal opinion by hiring a commercial real estate firm to deliver an independent Broker Opinion of Value (BOV) or a certified appraisal. The appraiser must evaluate triple-net lease comparables for equivalent square footage, clear-height, and zoning in your submarket. If your company was paying your personal holding entity $250,000 annually but the market rate is $150,000, the $100,000 add-back is rock solid. Provide the formal appraisal report directly to the QoE team. Auditors yield to third-party verifiable documentation; they dismantle unsubstantiated owner estimates.