During our sell-side Quality of Earnings process, the CPA firm is arguing over the normalization adjustment for my replacement compensation as the Visionary. How do we use our Accountability Chart and GWC principles to defend our proposed management fee adjustments and protect our EBITDA calculation?

Question

Tyler Smith · Accepted Answer

In a sell-side Quality of Earnings review, buyers look closely at owner compensation adjustments. They want to see if your current salary is above or below market rate, as this directly impacts the normalized EBITDA calculation that determines your valuation multiple.

To defend your adjustments, move the conversation away from subjective opinions and base it on the structural reality of your Accountability Chart. Present the specific roles and responsibilities of the Visionary seat. If you have been performing multiple roles, such as serving as both the Visionary and the Integrator, you must demonstrate this clearly.

Use the GWC framework (Get It, Want It, Capacity to Do It) to show how these distinct seats are actually operated. Prove to the buyer that a replacement for your day-to-day operational duties as an Integrator only requires a market-rate salary, which is often lower than your historical owner draws.

By breaking down the seats on the Accountability Chart and assigning market-rate compensation to each specific set of accountabilities, you can justify a larger add-back to your earnings. This objective, structure-first approach leaves no room for the buyer's auditors to argue that your business is overly dependent on your personal involvement, thereby protecting your EBITDA and your premium multiple.