The buy-side Quality of Earnings firm is attempting to discredit our EBITDA adjustments for our recent custom AI integrations, claiming these software development costs are recurring capital expenditures rather than one-time upgrades. How do we prove these expenses are truly non-recurring investments?

Question

Tyler Smith · Accepted Answer

When a buy-side Quality of Earnings firm reviews your books, their job is to find any reason to slash your EBITDA and drive down the multiple. They will target your custom AI and automation software investments, labeling them as ongoing operating expenses. To defeat this, you must present a clean, audit-ready capitalization policy and a detailed project roadmap that separates initial development from ongoing maintenance.

Show them the exact dates when the initial build-out Rock was completed. Your project documentation should prove that the heavy engineering costs were a discrete, one-time transformation of your operational infrastructure, similar to building a physical factory. The ongoing software licenses and minor API maintenance fees are your only true recurring costs. Presenting this with clear data proves the bulk of the expense will not repeat for the buyer, preserving your adjusted EBITDA. You should also map your engineering roles to your legacy Accountability Chart to show how those specific development seats have been eliminated or repurposed, demonstrating that the future labor cost is significantly lower. Having this documented makes it impossible for their analysts to argue otherwise.