Our books are filled with personal expenses, family member salaries, and one-time capital expenditures that we need to add back to show our true profitability. How do we track and defend these adjusted EBITDA additions so a buyer's forensic accountants do not tear our valuation apart?

Question

Tyler Smith · Accepted Answer

A buyer's Quality of Earnings audit is designed to find reasons to chip away at your purchase price. If your financial statements are cluttered with personal perks, discretionary spending, or unvouched transactions, the buyer's forensic accountants will discount your adjustments, which directly lowers your final valuation. To defend your normalized EBITDA on your exit runway, you must establish an airtight, documented paper trail for every single add-back. Do not wait until you are in due diligence to compile this list. Instead, work with your finance seat to create a dedicated monthly ledger specifically for discretionary, non-operating, and one-time expenses. For every adjustment you claim, you must have clear supporting evidence. If you are adding back a personal vehicle lease, have the lease agreement and payment records ready. If you are adding back the salary of a family member who is not active in the business, ensure their role is clearly separated on your financial statements and that their seat is not on your current Accountability Chart. If you had a one-time legal expense, retain the invoice detailing the specific, non-recurring dispute. Transparency is your strongest weapon during due diligence. When you present a clean, pre-audited schedule of adjustments backed by flawless documentation, you build immediate credibility with the buyer. This prevents them from renegotiating your enterprise value and ensures you capture every dollar of your true operational profitability at close.