We are delaying our sale to upgrade our operating systems, but how do we calculate if the waiting flow cost is worth the hidden lump sum cost of the upgrade?

Many owners delay selling their company because they want to upgrade their software, hire a new executive, or fix a broken department to command a higher valuation. However, delay is not free. You must evaluate the strategic real options of your business.

To do this, compare the waiting flow cost against the hidden lump-sum cost of upgrading your quality.

The waiting flow cost is the capital, time, and emotional energy you consume by staying in the business for another year or two. It includes the risk of a market downturn, the loss of alternative investment returns, and the ongoing operational stress of running the company.

The hidden lump-sum cost of upgrading includes the cash required to implement new systems, the distraction it causes your leadership team, and the risk that the new system fails to deliver the expected return.

Before you delay your exit to make an upgrade, run the numbers. Will a fifty thousand dollar software upgrade actually yield a five hundred thousand dollar increase in enterprise value?

If the answer is no, it is often better to sell the business at its current stage and let the buyer fund the upgrade. Buyers are often better capitalized and possess the specialized resources to handle major upgrades more efficiently than you can.

Category: Exit Planning