The buy-side Quality of Earnings firm is questioning our personal expenses and discretionary owner add-backs, calling them standard business costs and trying to reduce our adjusted EBITDA. How do we prove these expenses are truly discretionary and get them added back to our valuation?

Question

Tyler Smith · Accepted Answer

Buy-side analysts are paid to find reasons to reduce your adjusted EBITDA. They will target owner-related expenses like vehicles, travel, family salaries, and personal technology, arguing that these costs are necessary to keep the business running.

To defend these add-backs, you must use your EOS Accountability Chart as your primary exhibit. You must prove that the roles associated with these personal expenses are either being eliminated post-close or are already handled by other team members who are paid standard market wages.

If an owner spouse is on the payroll but has no seat on the Accountability Chart and does not execute any Rocks, their salary is a clean, undeniable add-back. If you have personal club memberships or travel expenses, you must document how these do not impact customer retention or daily operations.

Prepare a detailed ledger for the Quality of Earnings team that matches every single disputed add-back to a specific historical transaction, backed by written confirmation that these services are non-essential for the future buyer. By proving your leadership team runs the business independently through your established Level 10 Meeting™ structure, you can demonstrate that these personal expenses are purely discretionary and must be added back to your baseline valuation.