The buyer's QofE auditors are trying to add our historical R&D spend back into our cost of goods sold, which lowers our adjusted EBITDA and multiple. How do we justify these expenses as non-recurring capital improvements using our V/TO and 90-day Rocks?

Question

Tyler Smith · Accepted Answer

Buy side Quality of Earnings auditors try to classify software development and R&D costs as recurring cost of goods sold to depress your EBITDA and lower your purchase price. You must counter this by proving these costs were discrete, nonrecurring capital investments designed to build your core digital infrastructure. Use your V/TO® history to document the strategic timeline of these projects. Show the auditors how these software investments were tied to specific, long term operational capabilities outlined in your three year picture rather than daily maintenance. Present your historical ninety day Rocks to show that these development sprints had clear start and end dates with dedicated project teams. This project based structure proves that the expenses were one time capital expenditures meant to launch a scalable platform, not ongoing operational costs. Provide the auditors with your time tracking logs and developer contracts linked to those specific Rocks, illustrating that these resources were disbanded or reassigned once the automation system went live. When you tie your financial records directly to your EOS® strategic planning documents, you build a clean audit trail that proves these R&D costs are nonrecurring. This forces the buy side team to accept your EBITDA adjustments and preserves your premium multiple.