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Key takeaways
- Compare the underlying work across years, not just vendor names.
- An irregular cost can still meet a recurring business need.
- Describing an expense and accepting an earnings adjustment are separate decisions.
Short answer
Write down what happened before choosing the label. Identify the service, event, amount and period, then explain why the cost is expected to end. A seller may have a reasonable explanation, but the buyer needs records that allow the explanation to be checked.
The earnings add-back definition introduces the adjustment process. This answer narrows the issue to recurrence. It asks whether differently named expenses across several years serve the same continuing function, even when the current vendor or project is new.
Longer answer
A bookkeeping category does not determine the economics. A cost booked to a special-project account might pay for work the business needs repeatedly. Conversely, a familiar expense account might contain an unusual event. Review the actual invoice and circumstances instead of deciding from the account heading.
SEC staff guidance offers a useful, limited comparison. In its non-GAAP reporting interpretations, the staff explains that operating expenses occurring repeatedly or occasionally, even at irregular intervals, can be recurring. This guidance concerns registrants and SEC presentation requirements; it is not imposed here as a universal private-sale rule. (Source: SEC staff question 100.01)
The same guidance distinguishes describing an item as non-recurring from whether a registrant may make an adjustment subject to other requirements. Do not turn either point into a blanket claim that every unusual expense must be accepted or every recurring adjustment is prohibited in a private transaction.
Use the earnings-measure guide to identify the starting figure. The label should reveal what was changed. An accountant’s or buyer’s decision about an adjustment needs its own reasoning, including the purpose of the analysis and the ongoing cost of operations.
What it depends on
Search earlier periods by the work performed. Vendor names and account codes can change. A recruiting campaign, vacancy service and hiring project may all support filling staff vacancies. The caregiver payroll guide helps connect those costs to the underlying staffing history.
Ask whether another cost replaces the claimed saving. Bringing work in-house may reduce an outside invoice while increasing employee time, systems or supervision. Record that proposed operating change separately from the historical expense. A planned improvement is not proof that the seller already earned the improved result.
Check for related income, reimbursements or recoveries. A review that removes an unusual cost but ignores its related benefit may overstate the adjustment. SEC staff also addresses asymmetric treatment of charges and gains in its own reporting context. Keep the complete event visible in the transaction workpaper. (Source: SEC staff questions 100.02–100.03)
Underlying evidence remains essential. IRS guidance explains how invoices and other documents support book entries. A description in a sale summary should lead back to those records, including the period in which the cost was recorded. (Source: IRS supporting records)
Example
Assume a fictional seller describes its 2025 recruiting charge as one-time because that supplier was hired for the first time. The reviewer finds the three records below. Each year’s charge supported filling ordinary staff vacancies; no reimbursement or replacement-cost conclusion is assumed.
| Fictional year | Recorded description | Amount in that year | Operating purpose |
|---|---|---|---|
| 2023 | Recruiting campaign | $8,000 | Fill staff vacancies |
| 2024 | Vacancy service | $11,000 | Fill staff vacancies |
| 2025 | Hiring project with a new vendor | $9,000 | Fill staff vacancies |
The new supplier does not show that the business’s recruiting need arose only once. The records support a question about an ongoing function. They do not establish that every dollar will recur, which vendor will be used or what future staffing costs should be.
The three charges total $28,000 across three years. Only the $9,000 charge is included in the assumed 2025 starting profit. The historical total cannot be added to that one year’s earnings. Nor does averaging the charges automatically produce an accepted future budget or normalization amount.
What to do next
Prepare a workpaper with the event, source records, affected period, earlier comparable work and proposed ongoing treatment. Keep the seller’s request and reviewer’s conclusion in separate fields. Use the QoE definition to understand the role of evidence in that review.
Gather the supporting files through the seller document guide. IRS internal valuation guidance discusses analyzing historical financial information and appropriate adjustments for the chosen method. It guides IRS valuation staff, not every broker’s engagement. (Source: IRS business valuation guidance)
Connect the reviewed result to the valuation discussion and sale preparation plan. The useful outcome is a clear explanation of the cost and the remaining uncertainty, with each proposed change traceable to the stated earnings period.
Frequently asked questions
Is an expense one-time because I paid that vendor only once?
No. The business may have paid other vendors for similar work or used employees to meet the same need. Review the purpose and operating history. A first invoice from a particular supplier does not establish that the underlying expense disappears after the sale.
Does every recurring cost have to be exactly the same each year?
No. Amounts and timing can vary while the business still needs the work. Separate what actually recurs from an unsupported estimate of its future cost. Historical frequency helps frame the question, but it does not guarantee the next period’s amount.
Do SEC presentation rules automatically govern every private seller’s add-backs?
No. The cited staff interpretations address SEC reporting and registrant facts. They illustrate why recurring-cost descriptions need care. The actual rules and agreements relevant to a private transaction need their own review; the source is not a universal acceptance or rejection test.
Can I add several years of unusual costs to one year’s earnings?
Only costs included in the stated starting period can enter an adjustment to that period. Earlier records may explain recurrence, but they are not additional current-year expenses. Trace each proposed amount to the starting profit and identify any prior adjustment before doing the arithmetic.
Sources
Sources are dated to distinguish current guidance from earlier publications. They support the identified facts; the transaction questions and examples are educational analysis.
- SEC staff: recurring expenses and non-GAAP presentation (2022 and 2016 staff interpretations, reviewed 2026). Retrieved September 8, 2026.
- IRS: What kind of records should I keep? (2026 retrieval). Retrieved September 5, 2026.
- IRS: Internal Revenue Manual 4.48.4, Business Valuation Guidelines (2020 guidance, reviewed 2026). Retrieved September 8, 2026.