The buy-side Quality of Earnings auditor is trying to add back our personal expenses but is discounting our owner salary adjustment, claiming our replacement CEO will cost more than we currently pay ourselves. How do we defend our EBITDA adjustments?

Question

Tyler Smith · Accepted Answer

The replacement salary adjustment is a common battleground in Quality of Earnings audits. Buyers want to inflate the projected cost of a replacement CEO to drag down your adjusted EBITDA, which directly shrinks your purchase price. To defend your adjustments, you must use an objective, market-based approach. Do not guess what a replacement CEO costs. Present the auditor with independent salary survey data for your industry and region. Show them your Accountability Chart, which clearly defines the roles and responsibilities of your seat. If you have been acting as both the Visionary and the Integrator, prove that you are hiring an Integrator at a market-rate salary and that the Visionary duties will be absorbed by the existing leadership team. This prevents the buyer from double-counting the replacement cost. Furthermore, demonstrate that your AI-powered operations have streamlined executive functions, meaning a new CEO can manage the company with less administrative effort. By presenting a documented Accountability Chart and objective compensation data, you can shut down the auditor's subjective estimates and protect your adjusted EBITDA from being unfairly eroded.