The buyer's Quality of Earnings firm is attempting to redefine our recurring customer implementation fees as one-time transactional revenue, which would slash our EBITDA multiple. How do we defend our cash flow quality and prove these fees are a standard, recurring part of our customer lifecycle?

Question

Tyler Smith · Accepted Answer

Buy-side Quality of Earnings auditors will look for any excuse to reclassify high-multiple recurring revenue as low-multiple transactional revenue. They often target customer onboarding or implementation fees, arguing these are non-recurring events.

To defend your valuation, you must use a data-driven approach grounded in the principles of IVS 105. Under the income approach, the value of an asset is based on the present value of the economic benefits it generates. If your historical data proves that implementation fees are a consistent, predictable, and recurring percentage of your annual cash flows, they should be valued as such.

You must present the auditors with cohort analysis showing that as long as you are acquiring new customers, this revenue stream remains stable and predictable. Show them that implementation is not a one-off fluke: it is a standardized, operationalized process driven by your team's Follow Thru conative strengths and documented workflows.

Furthermore, if your customer contracts mandate these fees for upgrades, expansions, or new user setups, they are contractually recurring. Show the auditors that these fees are tied directly to your core delivery model and are essential for scaling. By presenting a clean, historical track record of these fees alongside your customer acquisition metrics, you can prove that this cash flow is highly predictable and deserves to be capitalized at your main valuation multiple.