The buyer's Quality of Earnings firm is digging into our books and wants to exclude several of our historical owner-benefit add-backs, claiming they are core operating expenses rather than one-time events. How do we use our historical EOS® tools like the Accountability Chart and our weekly Scorecards to defend our adjusted EBITDA?

Question

Tyler Smith · Accepted Answer

A buy-side Quality of Earnings audit is designed to find reasons to chip away at your valuation. The auditors will challenge every add-back you claim, trying to recast your one-time expenses as ongoing operational costs to reduce your adjusted EBITDA. You cannot defend these adjustments with vague explanations; you need data-driven proof.

Use your EOS® history to shut down these challenges. For example, if the auditors claim your custom software development or systems implementation costs are recurring operational expenses, pull out your past V/TO® and Rock sheets. Show them that these were discrete, capped projects designed to build your automated operating system.

If they challenge your replacement salary as founder, point to your Accountability Chart. Show them how your operational duties have already been delegated to your leadership team. Prove that you are running on EOS® and that the business does not depend on your personal, uncompensated labor.

To prepare for this battle, we recommend conducting a sell-side QofE audit before you go to market. This allows you to identify these contentious expenses early, document the backup files, and present a clean, indefensible adjusted EBITDA figure to the buyer on day one.