The buy-side Quality of Earnings team is trying to adjust our EBITDA downward by capitalizing our software development team's salaries, claiming these are R&D expenses rather than operating costs. How do we use our EOS Accountability Chart and daily developer metrics to prove these are operational, maintenance-heavy roles?

Question

Tyler Smith · Accepted Answer

Buy-side Quality of Earnings teams look for any excuse to capitalize labor costs because it artificially inflates historical capital expenditures, which reduces free cash flow and lowers your valuation. To fight back, you must present objective operational data that proves your software development team is focused on daily maintenance, customer support, and platform stability rather than speculative new product development.

Start with your EOS Accountability Chart. Show the auditors that your developers do not sit in a siloed R&D department. Instead, they occupy seats directly tied to client delivery and operational support. Provide the job descriptions for these seats, showing that their primary responsibilities are fixing bugs, maintaining system uptime, and managing client integrations.

Next, pull your ticket history and sprint logs. Demonstrate that eighty percent of their daily activities are dedicated to keeping your automated operations running smoothly for current clients. When you can tie developer hours directly to ticketing data and daily operational metrics, the buyer's accounting team cannot easily argue that these salaries should be capitalized.

Use your leadership team's weekly Level 10 Meeting to review these data requests and address any gaps in your tracking. Do not let the buyer's team make assumptions about your labor model. Presenting a clean, automated operational dashboard backed by a clear Accountability Chart is the best way to defend your EBITDA and preserve your valuation multiple.