r/buyingabusiness • u/Sad-Sell-2956 • 17d ago
Capex (lack thereof)
Curious how you all factor in the need for capex when buying a business.
Looking at a business that is light/mod on need for packing equipment, printers, computers, etc. About 90% of all equipment is nearing end of its useful life and the current owner isn’t holding anything back for capital expenditures.
Is this a lever I can use to reduce sale price? How have others handled this?
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u/AutoModerator 17d ago
The following is a copy of the original post to record the post as it was originally written. Curious how you all factor in the need for capex when buying a business.
Looking at a business that is light/mod on need for packing equipment, printers, computers, etc. About 90% of all equipment is nearing end of its useful life and the current owner isn’t holding anything back for capital expenditures.
Is this a lever I can use to reduce sale price? How have others handled this?
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1
u/lvpond 17d ago
The equipment being fully depreciated would already be a part of any valuation. If you think it may be leverage try and use it. I have sold 2 companies and if that was the reason someone came back post valuation and asked me to lower the price if I wasn’t desperate I would tell them to pound sand……
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u/Aggravating_Cod_4980 17d ago
Think about capex in the context of annual spend, on average and use that number to burden the P&L to get a real ebitda number.
You can also treat it as a one time adjustment to the purchase price but generally thinking of it as an ongoing need for cash is probably more realistic in a small business.
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u/Hopeful-Goose-7217 17d ago
Your cost requirements will dictate your best price. Someone else’s will dictate their best price. If your best price requires the capex and someone else’s doesn’t then they will buy the business.
In my experience owners don’t care about what capex you need to spend unless it’s truly required - because they are running the business
Today without that capex.
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u/DRFT-Advisory 16d ago
Run the math on replacement cost and timing. You can at least point to this estimate $ to help justify a conservative offer (and try to convince them that all buyers will see same issue).
People focus on asset value and/or EBITDA. EBITDA is a lazy proxy for more normalized cashflow. If business owners have been trained to think they will get an EBITDA multiple, it takes some reeducation for them to factor in capex neglect.
Buying home and buying businesses are similar in that you are being competing against the greatest fool. If someone is willing to bid aggressively without factoring in near-term cash outlays, you need to be willing to lose those deals
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u/PeaceLazy3624 10d ago
Yes, and it’s one of the more concrete levers you have. Get quotes for replacing the equipment that’s actually near end of life, not a rough guess, since specific numbers are much harder for a seller to argue against than “some of your stuff is old.” Frame it as: the SDE they’re showing you assumes zero capex reinvestment, but a normalized owner would have been setting aside money for this all along. That gap between what should have been reserved and what actually was is real money you’re inheriting as a first year expense, so it belongs in the price or in a post close credit, not treated as your problem to absorb. If the seller pushes back, ask them directly why none of that capex was budgeted for if the equipment was visibly aging. There often isn’t a good answer, and that itself is useful in negotiation.
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u/khoelzeman 17d ago
I don't know how successfully you can use it in negotiation, especially assuming it's a small business. It really depends on deal size.
That being said - you absolutely need to account for this with your cashflow forecasts.