Maintainable earnings: closing the gap between your accounts and the Fund's number

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. Section 3.4 of the 2025 IPEV Guidelines made the reconciliation between management figures and maintainable earnings a required step. Founders who supply the reconciliation 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 the 2025 IPEV update made the reconciliation between them a required, documented step.

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.

Why the gap exists

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.

The seven adjustments founders need to lead

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 reduce reported earnings via the amortisation charge; expensed in full they reduce earnings up front but leave operating run-rate intact. The Fund applies a consistent capitalisation policy across the portfolio and normalises management's choice to it.

5. Operating lease vs finance lease treatment. Particularly for businesses on IFRS 16, the EBITDA figure can be flattered by operating-lease reclassification. The Fund adjusts to a comparable basis.

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.

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.

What Section 3.4 changed

The 2025 IPEV update made three things explicit that were previously implicit.

Mandatory reconciliation. Section 3.4 now requires the valuer to document the reconciliation between the reported earnings figure and the maintainable earnings figure used in the valuation. The documentation is required regardless of which technique is being used (multiples, DCF, or comparable transactions). Pre-2025, reconciliation was discretionary; post-2025, the absence of a documented reconciliation is itself a flag for the auditor.

Sustainability standard. Adjustments are only allowable where the maintainable nature of the change is "demonstrable from contemporaneous evidence." Translation: an add-back needs a paper trail, not a verbal explanation. This dovetails directly with the known-and-knowable evidence standard in Section 2.5.

Consistency through the cycle. Once a reconciliation has been agreed at round close, the same reconciliation logic must be applied at every subsequent quarterly mark, with adjustments only for new evidence. A Fund can no longer reach for new add-backs in soft quarters; conversely, a founder cannot reach for new add-backs at exit.

How to build the reconciliation pack

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.

What the Fund tests at every quarterly 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. The Fund cannot reach for new arguments quarter to quarter.

What founders should not do

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. The IPEV standard requires consistency.

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.

Where maintainable earnings sits in the IPEV Founder Series

This is the third piece in the four-part IPEV Founder Series.

1. Why your Series A pitch is really a Fair Value defence in disguise — the frame.
2. Calibration: the discipline that turns a number into a defensible number — Section 4.
3. Maintainable earnings reconciliation (this piece) — Section 3.4.
4. Known-and-knowable evidence under Section 2.5 — what evidence counts.

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 Co-Founder of Opagio. Thirty years in structured finance and corporate transactions, ex-NM Rothschild and GEC Finance. Opagio builds the intangible asset evidence platform that institutional investors expect. About the team →