During the buy-side Quality of Earnings audit, the analysts are challenging our normalized EBITDA add-backs for our systemization expenses, claiming our EOS coaching and software fees are ongoing operational costs. How do we defend these implementation expenses as one-time, non-recurring investments to protect our valuation?

Question

Tyler Smith · Accepted Answer

During a buy-side Quality of Earnings audit, the analyst's job is to challenge every adjustment to maximize their client's leverage. They will argue that EOS® coaching fees, software subscriptions, and leadership offsite expenses are recurring overhead that should remain in your historical EBITDA.

To defend these adjustments, you must prove these costs were part of a defined, finite transformation period that has concluded. Present your transition roadmap showing the implementation of the operating system as a capital investment. Detail how your team went through the initial Focus Day, Vision Building, and quarterly alignment sessions to establish the superstructure.

Show that while the initial coaching and setup fees were high, the system is now fully self-sustaining. Use your Accountability Chart to demonstrate that the leadership team now runs their own Level 10 Meeting™ structure and handles internal training independently. Point out that the legacy consulting fees have ceased or dropped to a nominal maintenance rate.

You should also show the direct return on investment from these expenses. Link your systemization costs to the reduction in founder-dependence and the increase in gross margins. If you can prove that spending fifty thousand dollars on systemization eliminated the need for a high-salaried middle manager or reduced customer churn, the analyst will have a hard time classifying those fees as standard, non-value-adding overhead. Stand your ground and treat these as capital investments, not recurring operating expenses.