We are two years away from a sale and need to decide whether to invest in upgrading our facility equipment and IT servers or freeze CapEx to keep our cash flow high. How will a buyer view these decisions during due diligence?

Question

Tyler Smith · Accepted Answer

Trying to artificially boost your cash flow by freezing capital expenditures on your exit runway is a dangerous strategy. While it might look like you are maximizing short-term EBITDA, sophisticated buyers will spot this immediately during their operational due diligence.

If a buyer detects that you have deferred critical maintenance, outdated your software, or neglected your fleet, they will calculate a CapEx deficit. They will then subtract this estimated cost directly from your purchase price at closing. You do not actually save any money, and you risk damaging the trust of the buyer.

Instead, take a strategic approach using your V/TO®. Map out your CapEx requirements for the next three years. Focus your investments on technology and equipment that directly improve operational efficiency or capacity. If upgrading an automated packing line increases your throughput and reduces labor costs, that investment directly improves your EBITDA and your valuation multiple.

For non-essential upgrades, document the need and present it as an expansion opportunity for the buyer. Show them how investing in that specific equipment will unlock the next level of growth. This proactive approach proves you have maintained the business responsibly, eliminates purchase price deductions, and paints a clear roadmap for the buyer to scale the company.