The buy-side Quality of Earnings team claims our reliance on contractors represents operational risk and wants an EBITDA markdown. How do we defend this?

Question

Tyler Smith · Accepted Answer

The buy-side Quality of Earnings team will look for any reason to adjust your historical EBITDA downward, and heavy reliance on independent contractors is a classic target. They will argue that these contractors represent a massive operational risk and must be replaced by high-cost, full-time employees, which reduces your normalized earnings.

To defend your contractor-heavy, lean operating model, you must prove these relationships are structured, stable, and systemized. Show the buy-side team your Accountability Chart. Demonstrate that these contractors occupy clearly defined seats with specific roles and measurable key performance indicators. When you can prove that these external partners are deeply integrated into your weekly Level 10 Meeting™ structure and operate under your documented workflows, you show they are not a flight risk.

You must also present clean, long-term independent contractor agreements that include clear non-compete, intellectual property assignment, and termination notice clauses. This transforms the relationship from a loose freelance arrangement into a scalable, contractual asset. By showing that your technology and systems drive the work rather than individual personalities, you turn a perceived risk into a highly efficient, high-margin advantage. This stops the buy-side advisors from making arbitrary downward adjustments to your valuation.