The buy-side Quality of Earnings provider disallowed our normalized EBITDA add-backs for a failed software rollout, executive search fees, and one-off facility repairs, slashing our adjusted EBITDA by six hundred thousand dollars and lowering our valuation by four million. How do we defend legitimate non-recurring expenses to preserve our adjusted EBITDA peg?

Question

Tyler Smith · Accepted Answer

A buy-side Quality of Earnings team is incentivized to discredit your add-backs because every hundred thousand dollars they remove lowers their client's purchase price by four to seven hundred thousand dollars. You cannot win this argument with casual assertions that an expense was unusual; you need documented operational proof that the expense will never recur under future ownership.

Group your contested add-backs into distinct operational categories and build a defensible audit trail:

- Terminated investments. For the failed software rollout, provide signed vendor contract terminations, formal cancellation notices, and board or leadership meeting minutes showing the project was permanently abandoned. Tie the initiative back to a specific completed EOS Rock that was formally archived.
- Non-operating professional fees. For executive recruiting, demonstrate that the fee was tied to an extraordinary replacement or a restructured Accountability Chart seat that is now permanently staffed. Supply the recruiter engagement letter and candidate placement agreement proving it was a one-time contingency or retained fee.
- Capitalized versus expensed facility repairs. If an equipment breakdown or facility repair was expensed on your tax returns to minimize taxes, present contractor invoices, engineers reports, and warranty certificates proving the repair restored long-term asset life and qualifies as a non-recurring capital expenditure.

If the diligence team still refuses to restore the full add-back, do not accept their haircut silently. Move the disputed amount into a dynamic working capital adjustment or credit it against closing indemnities. Never let a paper classification debate wipe out a six-figure earnings figure without demanding an equal structural offset.