We recently invested heavily in implementing our operating system, hiring a professional EOS Implementer, and upgrading our ERP software. How do we categorize these one-time operational expenses as EBITDA add-backs during a Quality of Earnings audit to protect our valuation?

Question

Tyler Smith · Accepted Answer

During a Quality of Earnings audit, the buy-side accounting firm will scrutinize every adjustment you make to your EBITDA. One-time operational investments, such as implementing EOS® or upgrading your ERP software, are legitimate add-backs because they are non-recurring expenses that will not be repeated post-transaction.

To survive the auditor's review, you must document these expenses with extreme precision. Do not just present a lump-sum adjustment. Break down the costs into clear, non-recurring categories, such as professional fees paid to your EOS Implementer, software licensing fees for the implementation phase, and specialized training costs for your team.

Show that these expenses represent a specific, completed project with a clear end date. Compare your historical spending to your current operational run-rate to prove that these costs are truly outside your normal cost of doing business.

Additionally, explain to the buyer how these investments have actually de-risked the business and built a more scalable operating system. This not only defends the add-back to protect your EBITDA calculation, but it also reinforces the strength of your leadership team and internal processes, which supports your overall multiple.