The buy-side Quality of Earnings auditor is adjusting our trailing EBITDA downward for unpaid bonuses while simultaneously demanding a higher Net Working Capital peg for accrued compensation liabilities. How do we fight this double-counting of the same operational liability?

Question

Tyler Smith · Accepted Answer

Buy-side Quality of Earnings auditors are paid to find reasons to reduce your purchase price, and double-counting liabilities is one of their favorite tactics. They will look at unpaid annual bonuses or accrued compensation and adjust your EBITDA downward, claiming these are real operating expenses that reduce your historical profitability. Simultaneously, they will try to include those exact same accrued liabilities in the Net Working Capital peg, which forces you to leave more cash in the business at close.

This is double-dipping. You cannot let them penalize your purchase multiple on the income statement while also stripping cash from your balance sheet for the same item. You must fight this on a conceptual level.

If an accrued liability is included in the Net Working Capital peg, it is already accounted for in the working capital adjustment at close. Therefore, it must not be used to reduce historical EBITDA.

To resolve this, present a clear, data-driven bridge showing how these adjustments interact. If the buyer insists on adjusting EBITDA downward, then those liabilities must be excluded from the Net Working Capital calculation entirely. Use your leadership team to pull clean, historical payroll and bonus data to prove that these payouts are predictable and seasonal, allowing you to establish a fair, normalized peg that reflects true operational reality.