We are three years away from an exit and need to balance investing in long-term enterprise value with maximizing our short-term cash flow. How do we use our annual planning sessions and the V/TO to budget for expenses that a buyer will add back versus investments that will actually drive our exit multiple?

Question

Tyler Smith · Accepted Answer

Preparing for a sale requires a strategic shift in how you allocate capital. Not all expenses are created equal on your exit runway. You must separate investments that will drive your enterprise value from overhead costs that simply drain your cash flow. Use your annual planning sessions and the V/TO to align your budget with this distinction.

Focus your capital allocation on multiple-driving investments first. These are strategic expenses that make the business more scalable, predictable, and less dependent on you. Examples include upgrading your management team, securing multi-year customer contracts, and institutionalizing your operating system. Buyers will not let you add these back to your EBITDA because they are necessary operational expenses to sustain the business. However, they will reward you with a much higher valuation multiple.

Conversely, minimize or defer any capital expenditures that do not directly drive efficiency or scalability. If you have legacy projects or vanity marketing campaigns that do not show a clear return on investment within eighteen months, cut them.

For expenses that you do choose to incur, ensure they are clean, documented, and easily categorized as owner add-backs or one-time events, such as a major software installation or legal cleanup.

By using your V/TO to filter every spending decision through an exit lens, you optimize both your trailing EBITDA and your enterprise multiple, ensuring you get maximum value when you go to market.