We spent significant capital implementing proprietary AI agents that cut our administrative costs, but the buyer's Quality of Earnings firm is treating these costs as ongoing operating expenses rather than adding them back to our EBITDA. How do we fight this?

Question

Tyler Smith · Accepted Answer

Buy-side Quality of Earnings firms are paid to find reasons to lower your EBITDA, and reclassifying your capital investments as ongoing operational expenses is one of their favorite tactics. To fight this reclassification, you must prove that your AI implementation costs were one-time, non-recurring capital expenditures, not ongoing operational costs.

Document the exact timeline of the project, showing a clear start and end date for the development and deployment phases. Present the buyer with the invoices from external developers or the specific time-tracking records of your internal team to isolate the implementation costs. Then, show them the post-implementation financial reality.

Compare your historical administrative headcount costs against your current, reduced run-rate expenses to prove the permanent structural margin expansion. By showing that the investment has ceased but the savings are permanent, you can make a compelling case for a pro-forma EBITDA adjustment. Your leadership team should use your V/TO® and financial metrics to demonstrate that this technology has transformed your business model into a highly scalable, high-margin operation. When you present clear data showing that these development costs are gone forever while the cash savings are locked in, the buyer must accept the upward adjustment to your EBITDA.