During the Quality of Earnings audit, how do we successfully defend our adjustment to normalize historical owner expenses when we transition our administrative duties to automated software solutions before closing?

Question

Tyler Smith · Accepted Answer

During a Quality of Earnings audit, the buy-side team will scrutinize every historical add-back you claim. If you have recently transitioned your manual administrative and operational tasks to automated software solutions, you must defend your adjustment to normalize historical owner-operator expenses.

To win this adjustment, you cannot simply present a spreadsheet of estimated savings. You must provide a clear, auditable trail of execution. Show the auditors exactly how your custom software tools have replaced historical manual processes, and prove that the manual labor costs have been permanently eliminated from your run-rate.

Present your before-and-after Accountability Chart to demonstrate how roles have been consolidated or removed entirely. If you previously paid a full-time coordinator fifty thousand dollars a year to handle client onboarding, and that process is now completely automated, that salary is a valid, permanent EBITDA add-back.

Use your V/TO and historical Rocks to show that this automation was a planned strategic initiative, not a temporary cash-saving measure before the sale. By providing concrete proof of permanent structural cost reduction, you force the auditors to accept your adjusted EBITDA, directly preserving your premium valuation multiple.