How should we pace capital expenditures and software investments across our three-year exit runway so we do not artificially suppress our EBITDA?

Question

Tyler Smith · Accepted Answer

A common mistake owners make on an exit runway is freezing capital expenditures, infrastructure upgrades, and software modernization to artificially inflate trailing twelve-month EBITDA. Buyers and their quality-of-earnings auditors look directly for this tactic. If an acquirer discovers that you achieved record profitability by skipping maintenance, ignoring legacy software debt, or squeezing critical tools, they will calculate the deferred CapEx and deduct it dollar-for-dollar from your enterprise value.

The proper strategy is to front-load your major infrastructure, automation, and technology expenditures into years one and two of your three-year runway. By making these investments early, you achieve three structural advantages:

- The implementation disruption and upfront cash outlay occur well before your final marketing window.
- You allow enough time to capture the operational efficiencies, labor productivity gains, and margin expansion that modern systems produce.
- You provide clean, defensible evidence during due diligence that your operating margins are sustainable and supported by modern infrastructure.

Ensure your finance team properly capitalizes long-term assets under GAAP rules rather than running them through operating expenses. This keeps your true operating profitability clear. When a buyer realizes they will not need to inject immediate catch-up capital into your operations post-closing, they will pay a premium multiple for your business.