The buyer's Quality of Earnings analysts are insisting that our historical inventory write-offs should be treated as recurring operating expenses rather than one-time adjustments, which directly lowers our adjusted EBITDA. How do we defend these inventory adjustments during the QofE phase without sounding like we are hiding operational inefficiencies?

Question

Tyler Smith · Accepted Answer

When a buyer's buy-side Quality of Earnings (QofE) firm targets your historical inventory write-offs, their goal is simple: they want to reclassify these write-offs as recurring operational costs. This directly reduces your adjusted EBITDA and chips away at your enterprise value. To defend your position, you must separate systemic operational issues from true one-time events.

First, pull your historical data and categorize every write-off over the last three years. You need to prove that these adjustments were triggered by non-recurring events, such as a discontinued product line, a warehouse relocation, or a one-time supplier defect. This is where your EOS® operational discipline pays off. Bring your Level 10 Meeting™ archives and your historical Issues Lists to the table. These records serve as contemporaneous evidence, proving to the analysts that these inventory issues were identified, isolated, and permanently solved, rather than being ongoing leaks in your business model.

Second, demonstrate that your current inventory management is run on tight, repeatable processes. Show them how your Accountability Chart clearly defines who owns inventory control and how your weekly scorecard metrics catch discrepancies before they accumulate. If you can prove that your forward-looking operational structure prevents these write-offs from happening again, the buyer has no logical basis to claim they are recurring operating expenses. Do not just argue accounting theory; use your EOS® history to prove the risk has been permanently retired.