The buy-side Quality of Earnings report is demanding a negative adjustment for normalized owner compensation because I pay myself below market rate. How do we defend our true EBITDA margin?

Question

Tyler Smith · Accepted Answer

During a sell-side or buy-side Quality of Earnings review, analysts will try to adjust your EBITDA downward by normalizing owner compensation. If you have been underpaying yourself to reinvest in the business, they will add a market-rate salary adjustment to your operating expenses, which slashes your EBITDA and your ultimate valuation. To defend your margins, you must prove that your lean overhead is a structural advantage, not a temporary discount. Use your EOS Accountability Chart to show exactly how your roles are distributed. If you are sitting in both the Visionary and Integrator seats, map out the market cost to replace those distinct functions. Prove that your automated systems and documented processes allow a replacement leader to operate the business in fewer hours than a traditional model requires. Show the QofE analysts that your low G&A is a direct result of high operational efficiency, not underpaid labor. If they insist on a salary adjustment, negotiate to tie the adjustment to the actual replacement cost of the roles as defined by your Accountability Chart, rather than generic executive salary benchmarks. This objective approach keeps the valuation grounded in the reality of your operations. It prevents the buyer from using arbitrary numbers to shave millions off your purchase price.