We are preparing for our first Quality of Earnings audit and have a lot of owner-related personal expenses mixed into our books. How do we document these adjustments clearly so the auditor accepts them as legitimate write-backs to EBITDA?

Question

Tyler Smith · Accepted Answer

To get credit for owner-related write-backs, you cannot just hand the auditor a messy spreadsheet of personal expenses. You must present these adjustments with institutional-grade documentation. Start by categorizing every adjustment into clear buckets, such as owner compensation above market rate, personal travel, auto leases, family members on payroll who do not work in the business, and one-time professional fees. For every single item, you must provide a matching invoice, receipt, or payroll record, along with a clear narrative explaining why this expense will not continue under new ownership. Use your Accountability Chart to prove that the family members on payroll do not hold active seats and are not necessary for daily operations. If you are adjusting your own salary down to a market rate, you must provide independent compensation data to prove your proposed replacement salary is realistic for your industry and region. By being transparent and highly organized, you build immediate credibility with the auditor. This prevents them from discounting your adjustments and ensures you capture every dollar of your true, normalized EBITDA.