During the Quality of Earnings audit, the buyer is rejecting our historical SG&A add-backs for personal vehicles and club memberships, claiming these are essential operational costs for client acquisition. How do we defend these owner-discretionary add-backs to preserve our adjusted EBITDA?

Question

Tyler Smith · Accepted Answer

Buy-side Quality of Earnings auditors will scrutinize your SG&A expenses to find any excuse to reject your owner-discretionary add-backs. If they can convince you that your personal vehicle, travel, and club memberships are essential client acquisition costs, they can keep those expenses in your normalized EBITDA, directly lowering your valuation multiple.

To defend these add-backs, you must prove that your client acquisition does not rely on personal perks or founder-led relationships. Show the auditors that your sales process is institutionalized and run by a structured system.

Use your EOS® Accountability Chart to demonstrate that marketing and sales are distinct functions with dedicated seats. Show that these seats are fully compensated at market rates and do not rely on your personal discretionary spending to generate revenue.

Back this up with your weekly Scorecard metrics. Prove that your lead generation and sales conversions are driven by repeatable, documented processes, not by personal entertainment.

When you show that your customer acquisition is system-driven and fully funded by standard operating expenses, the buyer cannot argue that your personal perks are necessary to run the business. This keeps your adjusted EBITDA high and protects your final valuation multiple.