We are entering a buy-side Quality of Earnings review and we know the analyst will try to aggressively normalize our expenses to lower our adjusted EBITDA. How do we prepare our financial records and use our EOS® tracking history to prove that our recent investments in technology and recruiting are truly one-time, non-recurring expenses?

Question

Tyler Smith · Accepted Answer

Buy-side Quality of Earnings analysts make their living by finding reasons to claw back your adjustments and lower your EBITDA. To defend your one-time investments, you must provide a clean audit trail that clearly separates routine operating expenses from strategic, non-recurring initiatives. Do not rely on simple spreadsheets compiled at the last minute.

You can defend these adjustments by linking them directly to your historical EOS® Rocks. If you spent fifty thousand dollars implementing a new software system, prove it was a non-recurring strategic initiative by showing the signed Rock on your past V/TO® documents. This demonstrates to the analyst that the expense was a discrete project with a clear beginning and end, rather than an ongoing operational cost.

For recruiting fees, show that the search was for a specific, newly created seat on your Accountability Chart designed to transition the company away from owner-dependence. Provide the contract with the executive search firm alongside the corresponding EOS® organizational maps. When you back up your financial adjustments with clear, historical operational documentation, you make it incredibly difficult for the buyer's analyst to argue that these costs are recurring parts of your daily operations.