The impact of needed capital expenditures on a business sale
When a buyer looks at acquiring a business, they will calculate an anticipated rate of return on their investment. When calculating their return, they will look beyond the purchase price of the business and will also take into consideration additional money they will need to invest in working capital, improvements, and capital expenditures. If the anticipated capital expenditures are significant, it may result in a lower value and less marketable company simply because of the impact capital expenditures will have on a buyer’s return on investment.
If your business is in need of significant capital expenditures, should you go ahead and make them before selling? There isn’t an easy answer to this question, and you should always consult your business sale advisors to discuss the specifics of your company’s situation, the type of asset(s) in question, the level of investment, whether financial performance can be maintained without the investment, and the short-term impact on cash flow.