The buyer's Quality of Earnings firm is challenging our adjusted EBITDA calculation by claiming our owner-replacement salary add-back is too high and that a market-rate CEO will cost significantly more than our current draw. How do we defend our adjustment?

Question

Tyler Smith · Accepted Answer

The conflict over owner-replacement salary in a Quality of Earnings audit is a standard buyer playbook. They want to argue that replacing you will require a high-priced corporate executive, which reduces your historical adjusted EBITDA and lowers your purchase price. To defeat this tactic, you must present a clear, documented Accountability Chart.

If you are running on EOS®, you should have already separated your role as shareholder from your operational roles. Show the QoE auditors your Accountability Chart. If you have already delegated your day-to-day seat to an Integrator who is staying with the business, you have a rock-solid case. You can prove that the operational leadership is already paid at market rate and that your remaining duties are minimal or already covered by the existing leadership team.

If you are still occupying a critical seat, do not let the buyer guess the replacement cost. Proactively source local compensation data for a replacement manager or use your recruiting pipeline to show the true market rate for those specific accountabilities. Document the exact hours and deliverables required for your seat.

Ultimately, your defense rests on showing that the business operates through a self-sustaining leadership team. When you can prove that your team runs the weekly Level 10 Meeting™ and manages their own Rocks without your daily intervention, the buyer loses the argument that they must hire an expensive executive to keep the business from falling apart. Keep your documentation clean and present your operating model as a system, not a personal cult of personality.