The buyer's Quality of Earnings firm is digging into our books and trying to write down our adjusted EBITDA by claiming our owner-led sales and key systems are un-institutionalized and represent a structural risk. How do we use our EOS tools to defend our adjusted EBITDA and prove our earnings are sustainable?

Question

Tyler Smith · Accepted Answer

The Quality of Earnings audit is where buyer syndicates look for reasons to chip your purchase price. If your sales process or operations rely heavily on you, the owner, the QofE firm will label your earnings as high-risk and demand a multiple discount or a massive earn-out. To defend your adjusted EBITDA, you must prove your operations are institutionalized. We do this by showing them your Accountability Chart and your documented core processes. When a buyer can see exactly who owns each seat, that every seat is filled by someone who GWCs it, and that your weekly Scorecard tracks activity independently of your daily involvement, the risk premium evaporates. You must also present a clean adjustments schedule during the QofE process. Do not let the auditor normalize your expenses in a way that hurts your margin. If you have replaced manual labor with automated workflows, show them how those efficiencies are locked in. Use your historical Level 10 Meeting archives to prove that issues are identified, discussed, and solved at the department level without your intervention. Proving that the business runs on a self-sustaining operating system is the ultimate defense against post-LOI price chipping.