TL;DR. Maintainable earnings is the figure the Fund actually values you on, and it is rarely the EBITDA at the bottom of your management accounts. The IPEV multiples guidance (paragraph 3.4) asks the valuer to be satisfied that the earnings used are a reasonable estimate of maintainable earnings. Founders who supply a reconciliation between management figures and maintainable earnings defend a higher number; founders who don't, watch the Fund build a lower one — and use it to mark them every quarter for years.
The number on the bottom line of your management accounts is not the number the Fund is going to value you on. The Fund is going to value you on what it calls maintainable earnings — the recurring, normalised, sustainable earnings figure that strips out one-offs, non-economic accounting choices, and below-the-line items that would not survive into a steady-state operating model.
The gap between the two is consistently larger than founders expect. And a documented reconciliation between them is the clearest way to show the Fund's valuer how you got from one to the other.
This is the third piece in the IPEV Founder Series. The first two (Why your Series A pitch is really a Fair Value defence in disguise and Calibration: the discipline that turns a number into a defensible number) established the frame and the technical anchor. This piece deals with the line item the entire valuation rests on. For the Guidelines themselves and what the December 2025 edition changed, see our IPEV guidelines 2025 explainer.
Management accounts are produced to support management decisions: budgeting, hiring, runway analysis, board reporting. They reflect the choices that make sense for the business as it is being run today, with the team that is running it. Founder compensation, one-off acquisitions of talent, deferred revenue treatment, capitalised software development — all of these reflect operating reality.
A Fund's maintainable earnings figure is produced to support a different question: what would this business earn in a steady state, operated to institutional standards, by the team that will be in place after the round? The two questions have different answers, and the gap between them is not a manipulation — it is a different conceptual frame.
Management accounts answer "what did the business do this year." Maintainable earnings answers "what will the business sustainably do, run to institutional standards, every year from now on." Both are correct. The Fund values the second.
A typical maintainable earnings reconciliation has seven adjustment categories. Founders who pre-emptively produce the reconciliation supply a defensible number; founders who leave it to the Fund get the Fund's number. The seven are:
1. Founder compensation normalisation. Founders typically pay themselves below market in early years and above market in late stages of growth. The Fund normalises to a market-rate replacement cost — what would an institutional CFO, CEO, or VP cost for the same role. Net adjustment varies; in many Series A businesses it adds to earnings (founders underpaid), in mature businesses it subtracts (founders overpaid).
2. One-off costs. Acquisition fees, restructuring costs, legal disputes, brand relaunches, office moves, ERP migrations. Each is added back to earnings provided the expenditure is genuinely non-recurring. The discipline is on the word "genuinely" — Funds challenge add-backs that look like recurring costs in disguise.
3. One-off revenue. Just as costs are normalised, so is revenue. Catch-up billing, one-off licence sales, deferred revenue releases, retroactive price increases — all need to be stripped to arrive at a sustainable run-rate.
4. Capitalisation policy alignment. Software development costs capitalised under IAS 38 leave operating costs and return as an amortisation charge below EBITDA, so capitalising lifts EBITDA compared with expensing the same spend in full. The Fund applies a consistent capitalisation policy across the portfolio and normalises management's choice to it.
5. Lease treatment. IFRS 16 removed the operating vs finance lease split for lessees: most leases go on the balance sheet, and the rent is replaced by depreciation and interest below EBITDA, which lifts EBITDA with no change in cash. UK companies reporting under FRS 102 follow a similar model for periods beginning on or after 1 January 2026. The Fund adjusts to a comparable basis, either restoring lease costs as an operating cost or treating lease liabilities as debt.
6. Stock-based compensation. Almost universally added back in management accounts as a non-cash item, almost universally counted as a real cost by institutional investors. The treatment in the maintainable earnings figure is almost always to charge SBC as a real cost.
7. Working capital normalisation. Year-end push-on or push-off of working capital (early customer collections, deferred supplier payments) can flatter or depress the reported figure. The reconciliation normalises to a steady-state working capital profile.
| Adjustment category | Typical direction | Typical magnitude (Series A SaaS) |
|---|---|---|
| Founder compensation normalisation | + (underpaid founders) | £100K-£300K p.a. |
| One-off costs | + | £200K-£500K |
| One-off revenue | − | £100K-£400K |
| Capitalisation policy alignment | − (Fund expenses more than management) | £200K-£800K |
| Lease treatment (IFRS 16, amended FRS 102) | − | £50K-£200K |
| Stock-based compensation | − | £300K-£1.5M |
| Working capital normalisation | ± | £50K-£300K |
The net effect on a Series A business with £3-5m of reported management EBITDA is typically a maintainable earnings figure 20-40% lower than the management figure. The Fund applies its multiple to the lower figure. The founder who hasn't done the reconciliation discovers this only when the term sheet arrives.
The IPEV multiples guidance (paragraph 3.4) says that whichever period's earnings are used, the valuer should be satisfied that they represent a reasonable estimate of maintainable earnings. That implies adjusting for exceptional or non-recurring items, the impact of discontinued activities and acquisitions, and forecast material changes in earnings. The text is substantively the same in the 2022 and December 2025 editions: the 2025 edition did not add a reconciliation requirement. Its changes to 3.4 were minor edits on calibration and a new paragraph on reflecting add-on acquisitions. What follows is good practice, not a new IPEV rule.
A documented reconciliation. Setting out the bridge from reported earnings to the maintainable earnings figure is the practical way to show the valuer the adjustments the Guidelines describe, and the Guidelines say the valuer's rationale for significant judgements should be documented. An undocumented bridge is a natural question for the auditor.
Evidence for each adjustment. An add-back needs a paper trail, not a verbal explanation. This dovetails with the known-or-knowable test: the evidence should show the position at the measurement date.
Consistency through the cycle. IPEV expects consistent valuation techniques from one measurement date to the next unless market conditions or investment-specific factors change (Guideline 1.6). Applying the same reconciliation logic at every quarterly mark, and changing adjustments only on new evidence, follows from that — for the Fund in a soft quarter and for the founder at exit.
The reconciliation pack has six components. Build them in this order; the cumulative artefact is what gets agreed at round close and carried through every quarterly mark.
Step 1 — Trailing twelve months base. Start with TTM management EBITDA (or appropriate metric for stage). Cite the source statement and the period boundary explicitly. Auditors check this first.
Step 2 — Adjustment schedule. A line-by-line schedule of the seven categories above, with the dollar amount, the supporting evidence reference, and a one-sentence rationale per line. The supporting evidence is what gives the line credibility.
Step 3 — Forward-looking sustainability commentary. For each adjustment, document why the founder believes the adjustment reflects sustainable steady-state operation — not just historical anomaly. This is where the maintainability standard bites.
Step 4 — Sensitivity envelope. Identify the two or three adjustments most sensitive to operating assumptions. For each, document the upside and downside range and the operating signal that would resolve them.
Step 5 — Reconciliation summary. A single page showing TTM reported → adjustments → maintainable earnings. This is the page that gets attached to the round close documents.
Step 6 — Drift indicators. Pre-commit to the four or five operating metrics that would signal a need to re-open specific adjustments. This dovetails with the calibration drift indicators from the second piece in this series.
Example. A founder closing a £25m Series B at a 15× maintainable EBITDA multiple. Management reports £3.2m TTM EBITDA. The reconciliation pack identifies +£450K of founder underpayment, +£280K of one-off restructuring costs from the prior CFO transition, −£190K of one-off licence revenue, −£420K of IAS 38 capitalisation correction, −£140K of operating lease adjustment, −£680K of SBC added back in management accounts, +£100K of working capital normalisation. Net adjustment: −£600K. Maintainable EBITDA: £2.6m. The Fund applies the 15× multiple to £2.6m, producing a £39m valuation. Without the reconciliation, the Fund would have arrived at a more conservative number — typically £35-37m on the same multiple, because the Fund's own reconciliation would have been more aggressive on the negative side and less generous on the positive. The pack is worth £2-4m at close, and the same gap compounds at every subsequent mark.
Each quarter, the Fund's valuation committee runs three tests against the maintainable earnings figure.
Test 1 — Trajectory consistency. Has the underlying business produced the maintainable earnings trajectory implied by the round-close pack? Material deviation forces a re-mark or an explicit re-opening of specific adjustments.
Test 2 — Adjustment expiration. Are any of the round-close add-backs no longer justifiable? A one-off cost that recurs in subsequent periods is the most common case. The Fund removes the add-back, reducing maintainable earnings.
Test 3 — Drift indicator review. Have the founder-committed drift indicators moved adversely? If yes, the Fund opens the specific adjustments tied to those indicators.
The discipline is that the founder pack pre-commits to the conditions under which each adjustment can be reopened. That leaves less room for new arguments quarter to quarter, on either side.
Three failure modes are worth flagging.
Don't double-count. An add-back that is reflected in your projected forward-looking plan should not also flow through the historical reconciliation. Counting it twice overstates maintainable earnings, and the valuer will take it out.
Don't over-claim sustainability. Marking a recurring cost as a "one-off" because it happens to fall in a single year is the fastest way to lose credibility with the Fund's valuation committee. The maintainability standard means the cost would not recur under normal operating cadence.
Don't omit the inconvenient adjustments. A reconciliation pack that contains only upward adjustments is not a reconciliation — it is advocacy. The Fund's auditor will catch this and treat the entire pack as unreliable.
Warning. Funds keep a running file on founder reconciliation quality. A founder whose reconciliation pack at round close was honest, complete, and well-evidenced is given the benefit of the doubt at every subsequent quarterly mark. A founder whose pack was advocacy is re-marked aggressively.
This is the third piece in the four-part IPEV Founder Series.
Further reading. Normalised EBITDA, Quality of Earnings, Round-Ready Academy Lesson 6: Designing the metrics tree investors expect.
Next step. Run the Round Readiness Diagnostic. The diagnostic surfaces the seven adjustment categories above as discrete gaps and routes each to the operating evidence that closes it.
Tony Hillier is Chairman of Opagio. He specialises in valuation, due diligence, accounting and structured finance, and previously worked at NM Rothschild and GEC Finance. Learn more about our team.
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