The buy-side Quality of Earnings team is digging into our customer concentration and showing that our adjusted EBITDA is low quality because our top three clients represent forty percent of our revenue. How do we defend our earnings quality and prevent a post-QoE purchase price haircut?

Question

Tyler Smith · Accepted Answer

Buy-side Quality of Earnings (QoE) auditors are paid to find reasons to discount your business. When they look at customer concentration, they see risk. They will argue that your revenue is fragile and try to slap a steep discount on your EBITDA. To defend your earnings quality, you must shift the conversation from concentration to institutionalization. You do this by demonstrating that your customer relationships do not belong to you or a single salesperson, but to your operational system. Show the auditors your EOS Accountability Chart. Prove that you have dedicated Account Managers who own these relationships and that your operations team runs on a standardized playbook. Bring out your V/TO® to show your long-term plan, and demonstrate how your Level 10 Meeting™ structure keeps client accounts healthy. You want to show them that if you, the owner, walk away tomorrow, the clients stay because they are locked into your system, not your personality. Next, back this up with data. Show them your historical retention rates and the cost of switching for your clients. When you prove your operations are systemized and client retention is predictable, the QoE firm has a hard time arguing that your earnings are low quality. They will see that your EBITDA is sustainable, which preserves your purchase price.