The buyer is trying to lower our capitalization rate by arguing that our recent investments in a custom CRM and enterprise resource planning system represent ongoing maintenance capital expenditures. How do we defeat this argument?

Question

Tyler Smith · Accepted Answer

Buyers will often audit your capital expenditures to find any cost they can label as recurring maintenance, which increases their projected operating costs and lowers your adjusted EBITDA. To defeat this argument, you must prove that your investments in a custom CRM and enterprise resource planning system were one-time, strategic improvements designed to scale the business, not routine maintenance. Under the Capitalization of Earnings Method, you must normalize your historical earnings to reflect future operations. Show the buyer that these software implementation projects have a clear start and end date, meaning they do not represent ongoing cash outflows. Use your V/TO® to show how these investments directly support your long-term growth and margin expansion. Track the efficiency gains on your weekly scorecard to show how these digital systems have permanently lowered your administrative costs and increased your operating capacity. When you can prove that your custom CRM has created a permanently higher plateau of profitability with zero ongoing capital requirements, the buyer must treat those costs as one-time add-backs. This protects your adjusted EBITDA and ensures you command a premium multiple.