The buy-side Quality of Earnings auditors are disputing our owner-add-backs for personal travel, family salaries, and non-recurring software development. How do we systematically prove these expenses are true add-backs using our operational data?

Question

Tyler Smith · Accepted Answer

Buy-side auditors are paid to find reasons to reduce your adjusted EBITDA. Every dollar they successfully dispute from your add-backs can wipe out six to eight dollars of enterprise value at close. To defend your valuation, you must move away from subjective assertions and provide objective proof.

Start by categorizing your disputed add-backs into clean buckets. For personal expenses and family salaries, you must show clear payroll records and prove that these roles either do not need to be replaced post-close or can be replaced at a lower market rate. If your spouse is on the payroll but does not have a clear seat on the Accountability Chart, document this to show the buyer that their salary represents pure owner profit.

For non-recurring software development or capital expenditures, tie these expenses directly to past Rocks on your V/TO. Show the auditors the exact project timelines, invoices, and completion dates. This proves that these were one-time, strategic investments designed to build operational leverage, not ongoing operational costs.

Do not argue with the auditors. Use your Level 10 Meeting to organize your data. Have your finance team build a detailed, invoice-backed ledger for every single adjustment. When you present a clean, audit-ready data pack, you take away the buyer's leverage to re-trade the deal based on perceived financial sloppiness.