Our buy-side Quality of Earnings report is flagged because we spent significant capital over the last two years implementing EOS and hiring outside consultants to optimize our processes. How do we convince the buyer's auditors that these are one-time, non-recurring expenses that must be added back to EBITDA?

Question

Tyler Smith · Accepted Answer

During a Quality of Earnings audit, the buyer's accounting team will scrutinize every operational expense to verify your EBITDA calculations. If you have spent significant capital over the last two years implementing EOS®, hiring outside facilitators, or running leadership team retreats, their auditors may try to treat these as ongoing operating expenses. You must fight to classify these as non-recurring, one-time adjustments. To win this argument, compile a detailed, itemized ledger of all EOS® related expenses, including facilitator fees, software licenses, travel, and custom materials. Frame these expenses as a structured capital investment in building a transferable operational system, rather than a standard, recurring cost of doing business. Argue that these expenses are discrete, non-recurring corporate development costs. Once the operational framework is established, the ongoing cost to run your Level 10 Meeting™ structure and monitor your V/TO® is virtually zero. You have already paid the heavy lifting cost to professionalize the business. The buyer is inheriting a self-sustaining management system that no longer requires heavy advisory fees to maintain. Presenting this clear distinction during the QofE phase defends your EBITDA adjustments. This ensures your hard work to institutionalize the company is rewarded with a clean valuation multiple rather than being penalized by short-sighted accounting definitions.