The buyer is launching a buy-side Quality of Earnings audit and our historical financials look messy because of personal expenses and one-time software investments. How do we prepare our data and protect our adjusted EBITDA from being picked apart?

Question

Tyler Smith · Accepted Answer

Do not wait for the buyer to audit you. You must run a sell-side Quality of Earnings review before your business goes to market. This moves you from a defensive posture to an offensive one. Your goal is to establish a rock-solid baseline of adjusted earnings before the buy-side accountants start looking for reasons to claw back the enterprise value.

Begin by categorizing every single adjustment into a clear, verifiable ledger. This includes owner compensation adjustments, personal vehicles, family members on payroll, and one-time software integration costs. If you invested in AI tools or custom operational infrastructure over the last twelve months, these are capital investments, not ongoing operating expenses. Under international valuation standards like IVS 105, you must adjust these items to reflect normalized operating conditions.

Use your weekly Level 10 Meeting™ to assign this cleanup as a priority Rock for your finance seat. Ensure your team has the exact documentation, invoices, and contracts to back up every single adjustment. When the buyer sees a highly structured ledger with immediate supporting evidence, they lose the leverage to chip away at your numbers. If you cannot prove an add-back within twenty-four hours of their request, they will reject it and apply their multiple to the difference, costing you seven figures at close.