Investing in New Equipment When Selling a Business
As a general rule, you should not invest in new equipment or other hard assets when in the process of selling your business, unless it immediately increases your cash flow. Improvements to cash flow can come from both increased revenue and decreased expenses. Why shouldn’t I invest in new equipment or other hard assets? Reason: You are highly unlikely to recoup your investment upon selling your business. Buyers value businesses based on cash flow. They multiply cash flow to arrive at a business value. There are only two parts to the equation – the multiple and cash flow. They may appreciate your investment in the new equipment but they are unlikely to assign any value to it. If the buyer is considering two similar businesses, then the age and condition of the equipment may be a determining factor, but cash flow always trumps everything else.