I am close to my target exit number, but my broker thinks we can squeeze out another turn on the multiple if we spend two years upgrading our ERP system. How do I mathematically weigh the cost of waiting?

Question

Tyler Smith · Accepted Answer

When you are close to your target exit number, you face a classic strategic real option decision. You must decide whether to sell now, wait for a potential market improvement, or invest capital and time into upgrading your systems to increase your multiple. To make this decision objectively, you must quantify the flow cost of waiting. This is the ongoing cost of running the business, which includes the risk of market shifts, the mental toll on your leadership team, and the potential for operational burnout. Compare this flow cost against the hidden, lump-sum cost of upgrading your systems. An ERP upgrade, for example, often takes twice as long and costs twice as much as estimated. During the upgrade, your team's focus will be split, which can lead to a drop in current profitability. If the flow cost of waiting for two years exceeds the realistic valuation premium you might gain, the rational decision is to exit now. Use this strategic real options framework to strip the emotion out of the timing and make a clean, data-driven decision for your exit.