Quality of Earnings Add-Back Estimator

Build the sell-side addback file before the buyer's Q-of-E firm does. Eight standard categories, EBITDA uplift, multiple impact at your deal-stage multiple, and the documentation-status flag that signals buyer acceptance probability. Companion to Chapter 10A of the Liquidity Event Playbook.

Baseline EBITDA

Reported EBITDA (last 12 months) $ thousands

Expected EBITDA multiple e.g., 8.0x

Add-Backs

Enter positive dollar amounts (in $ thousands) for each category. Mark documentation status: Strong = buyer will likely accept; Moderate = will be challenged; Weak = likely partial or zero acceptance.

Owner compensation normalization

Difference between owner W-2 + perks and market-rate CEO comp

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Personal / discretionary expenses

Country-club; family auto; non-business travel; family-member comp

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One-time / non-recurring

Litigation; CFO severance; one-time consulting; PPP forgiveness; facility move

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Related-party adjustments

Above-market rent to owner real estate; non-market intercompany

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Run-rate / pro-forma

Q4 customer wins full-year; mid-year hire full-year cost

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Synergy / cost-out (strategic buyer only)

Costs buyer can eliminate (duplicate G&A; redundant systems)

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Customer concentration discount (NEGATIVE)

Enter as positive; will be subtracted. Top-1 over 15% triggers discount.

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Accounting policy normalization (NEGATIVE)

Enter as positive; will be subtracted. ASC 606 revenue timing; inventory method

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Results

Adjusted EBITDA (your file)

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All addbacks at face value

Likely buyer-accepted EBITDA

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Weighted by documentation strength

Net addback impact

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Buyer-accepted minus reported

Enterprise-value uplift

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Net addback × multiple

Headline EV at your multiple, buyer-accepted basis

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This is the EV the buyer's Q-of-E firm is likely to underwrite at. The gap to your "reported EBITDA × multiple" estimate is the value created by your sell-side Q-of-E preparation.

Documentation Strength Guide

Strong — Documentary file complete; comp survey, third-party appraisal, invoice trail, 1099 reporting; buyer typically accepts at 95% or higher.
Moderate — Some documentary support; reasonable inference; buyer typically accepts at 60-80% after negotiation.
Weak — Insufficient documentation; verbal assertion; aggressive position; buyer typically accepts at 20-50% or rejects.

The dollar impact of moving items from "Weak" to "Strong" is often the largest single ROI activity in sell-side prep. A $400K weak addback at 9x multiple = $3.6M at face value; if buyer accepts 30% (weak), only $1.08M of EV is captured. Strengthening documentation to "Strong" (95% acceptance) captures $3.42M instead — $2.3M of additional EV for the cost of a few weeks of file-building.

Full chapter and worked example

The full mechanics of sell-side and buy-side Q-of-E, the 30-day post-LOI choreography, the addback catalog with buyer counter-arguments, the cost and timing of provider engagement, and the directory of Q-of-E providers by tier and sector are in The Liquidity Event Playbook, Chapter 10A.