The buy-side Quality of Earnings firm is challenging our historical revenue recognition for our long-term customer projects, claiming we are front-loading earnings. How do we defend our revenue recognition policies to protect our trailing twelve-month EBITDA?

Question

Tyler Smith · Accepted Answer

When a buy-side Quality of Earnings firm targets your revenue recognition, they are trying to strip out EBITDA to lower your purchase price. To defend your trailing twelve-month numbers, you must move the conversation from accounting theory to operational reality. Bring clear documentation to prove your revenue recognition matches your actual delivery milestones. Under the IVS 105 Income Approach, your cash flows must reflect economic reality. Provide the buyer with historical data that links every dollar of recognized revenue to specific, completed deliverables. You should show a historical log of signed customer acceptance forms and proof of project completion. If you run your business on the EOS process, pull your historic Level 10 Meeting data and past quarterly Rocks to show how project timelines were consistently met and managed. This proves that your revenue recognition is not an accounting trick, but a reflection of your disciplined operational execution. You should also present a historical analysis of your accounts receivable and collection cycles. Showing that customers consistently paid their bills within thirty days of invoicing proves that the recognized revenue represents real, collectible cash. By combining accounting records with operational performance data, you will shut down their attempt to write down your EBITDA.