We spent significant money over the last twelve months hiring an EOS Implementer, buying software, and training our team on the operating system. The buy side QofE auditor is arguing these are recurring operational costs that cannot be added back to EBITDA. How do we defend this adjustment?

Question

Tyler Smith · Accepted Answer

A buy side QofE auditor wants to keep your EBITDA as low as possible to justify a lower purchase price. They will argue that since you continue to run EOS, the associated costs are regular, ongoing operating expenses. You must counter this by distinguishing between one time implementation costs and nominal ongoing maintenance. First, document all expenses related to the initial implementation. This includes the professional fees paid to your EOS Implementer, the travel costs for your leadership team strategy sessions, and the initial software licensing fees for your V/TO and scorecard tracking tools. These are clearly one time, non recurring expenses required to build the operating infrastructure, not daily operational costs. Second, prove that this investment has structurally optimized your business. Show how the implementation of the Accountability Chart, Rocks, and Level 10 Meeting structure has streamlined decision making, eliminated administrative redundancies, and reduced your reliance on outside consultants. Your argument is that these initial expenses are capital investments in your organizational infrastructure, similar to upgrading a factory machine. Once the system is running, the ongoing cost to maintain it is negligible. Present a clear ledger showing that these implementation costs have already ceased or will cease post close. This allows you to successfully defend the add back, protecting your adjusted EBITDA and preserving your transaction value.