We recently automated critical parts of our operational workflow, significantly lowering our forward labor costs, but our historical P&L does not yet reflect the full annualized savings. How do we get the buyer and their Quality of Earnings team to credit these pro forma operational add-backs to our historical EBITDA?

Question

Tyler Smith · Accepted Answer

Buyers and their Quality of Earnings auditors reject vague future promises. If you claim that recent operational automation will save half a million dollars next year, an auditor will strip that adjustment from your historical EBITDA unless you substantiate it with historical implementation dates, headcount terminations, and verified operational capacity.

To make pro forma run-rate add-backs stick, build an evidence binder that demonstrates exact timing and non-reversible structural changes:

- Provide the signed software contracts, vendor implementation sign-offs, and go-live dates for your automation systems.
- Show the corresponding payroll reduction on your Accountability Chart, including severance agreements and termination payroll logs that prove the eliminated seats will never be refilled.
- Calculate the precise annualized net delta between reduced labor expense and ongoing software licensing costs.
- Document your team's operational throughput on your Scorecard. Show that units completed per week or project turnaround times remained stable or improved after the operational shift took place.

Run this pro forma calculation through your own sell-side accounting advisor before launching the sale process. Present it as a normalized annualized run-rate EBITDA adjustment in the Confidential Information Memorandum, rather than bringing it up mid-diligence as an afterthought.

When the buyer's QofE team reviews your historical trailing twelve months, they are looking for stability. By demonstrating that the cost reductions have already been realized for at least two full monthly reporting cycles with zero negative operational impact, you turn a disputed add-back into recognized earnings that directly expands your valuation at the closing table.