We restructured our leadership team six months ago, replacing two expensive executive roles with a streamlined operation run by our existing team. The buyer's Quality of Earnings auditors are refusing to annualize these savings in our EBITDA. How do we defend this pro-forma adjustment?

Question

Tyler Smith · Accepted Answer

A Quality of Earnings audit is where theoretical valuations meet cold, hard operational realities. If you have permanently reduced your operating expenses, you are entitled to add those annualized savings back to your historical EBITDA. However, auditors will reject this if they think the new structure is unsustainable or will lead to operational failure.

To defend this adjustment, you must provide clear evidence that the business is performing better under the streamlined model. Use your Accountability Chart to show the auditors exactly how the roles and responsibilities were reassigned. Prove that the remaining team members have the GWC to handle their expanded seats without burning out.

Additionally, show them your historical operational data. Share your weekly scorecards and quarterly Rock completion rates from both before and after the restructuring. If your key performance indicators have remained stable or improved over the last six months, you have empirical proof that the previous executive roles were redundant. Presenting a highly structured operational framework like the EOS model shows the buyer that your cost savings are permanent and scalable, which directly supports your pro-forma EBITDA adjustments.