Our investment banker wants us to present a highly aggressive adjusted EBITDA calculation, but we are worried this will destroy our credibility during deep due diligence. How do we establish a bulletproof quality of earnings report on our runway so buyers do not chip away at our valuation?

Question

Tyler Smith · Accepted Answer

Investment bankers are naturally wired to maximize your initial enterprise value, but presenting highly aggressive or subjective add-backs is a dangerous game. When a sophisticated buyer brings in a quality of earnings firm for due diligence, they will scrutinize every single adjustment. If they find your adjustments are soft or based on hand-waving, they will use that discovery to re-trade the deal, slash their offer, or walk away entirely.

To protect your valuation, you must build a bulletproof financial bridge on your runway. Hire an independent, reputable accounting firm to perform a sell-side quality of earnings audit at least twelve months before going to market. This process identifies potential red flags, inconsistent accounting practices, and weak controls before a buyer ever sees them.

Use this report to clean up your financials systematically. If there are historical owner-related expenses, eliminate them immediately. Do not wait for the transaction to stop running personal expenses through the business. A buyer wants to see clean, GAAP-compliant books that reflect the true operational overhead of the business. By presenting a clean, independently audited set of financials, you disarm the buyer's diligence team and maintain complete control of the valuation narrative.