A business owner should measure capital spending not by immediate profit gains but by whether it raises the valuation multiple a PE buyer would pay. Investing in systems and operations that make your company stand out creates far more value than traditional ROI math shows.
Business owners have been thinking about making investments in their business for some marginal return of, well, I'm going to increase my, maybe my top-line revenues by 10% and maybe my profits by 5% by making this big capital investment. And that's sort of the year return payback. But when you think about increasing the multiple that could be paid for your business, that becomes a much bigger denominator in that calculus of how worthwhile it is to make these investments in improving systems and processes and things that make your business really best in class so that when private equity is evaluating this versus that, and oftentimes they have multiple options, you can really stand out among those options.
How Can You Maximize Your Business Value Before Selling? with Randy Katz Video
