The buyer's Quality of Earnings report is attempting to disallow our pro forma cost savings from software and workflow automation implemented six months ago, claiming cost reductions must be tested for a full calendar year. How do we defend run-rate operational adjustments during buy-side QoE?

Question

Tyler Smith · Accepted Answer

Buy-side Quality of Earnings teams routinely attack pro forma run-rate adjustments because every dollar of normalized cost they disqualify directly cuts the purchase price by your transaction multiple. Their job is to verify trailing cash flow, not give credit for forward-looking assumptions. To win this argument, you must separate theoretical savings from realized, operational efficiencies.

First, produce hard vendor cancellation records and payroll audit trails. If your automation allowed you to reduce headcount or eliminate third-party contractor expenses, show the exact termination dates, payroll reductions, and severance payments. Prove to the auditors that those payroll expenses cannot reoccur because the seats were permanently eliminated from your Accountability Chart.

Second, demonstrate workload capacity and operational metrics through your EOS Scorecard. Auditors will claim that cutting staff harms delivery capacity and that replacement hires will eventually be needed. Defend your margins by presenting six consecutive months of operational data showing throughput, on-time delivery, and error rates remained flat or improved after the software deployment. This proves the efficiency is structural, not deferred operational debt.

Third, calculate the run-rate adjustment using a split trailing period. If the automation went live mid-year, present the pre-implementation period and post-implementation period side by side. Instead of demanding a full annualized credit across all twelve months, negotiate an adjustment that bridges the gap between historical accounting and the verified run-rate of the last two quarters. When your data proves delivery did not degrade, the buyer loses the justification to strip those cost savings from adjusted EBITDA.