If you build it, will they come? Kevin Costner knew the answer to the question--he built the ball field in "Field of Dreams" and, sure enough, ghosts of baseball past soon arrived. But what if you, as a business owner, are faced with a decision to either commit to a large capital expenditure, or sell your business? Should you go ahead and build it? Will the buyers still come?

In my 30-plus years of experience as an investment banker selling middle-market companies, I have been asked the question many times: "Should I spend the money or leave it for the buyer?" Here is a guide that can help you with your decision to sell or stay. Your answer will be different based on your priorities.

The Invest or Sell Decision-Tree

Most capital investment decisions are based on a rigorous cost-benefit analysis, often in the form of discounting future cash flows to arrive at an internal rate of return (IRR) for the project. If the IRR is greater than the company’s cost of capital, the project would create value and theoretically should be completed. The opposite would be true if the return on capital is less than the cost of capital. But the equation changes when a business owner is also planning to sell the company. The risks of the new investment are extremely important, because if the projected cash flows don’t materialize then the investment capital was not well spent, and selling the company may become much more difficult, if not impossible.

Consider this example: A food manufacturer needed more production capacity to grow. The owner wanted to build a new plant to alleviate the bottlenecks, but he also was thinking about selling his company. As with many middle-market operations, the owner was going to be heavily involved in the planning, construction and start-up of the new facility. He simply didn’t have the personal capacity to both sell his company and build the new plant. What should he do?

In this case, the answer was straightforward: build it. The new plant was essential to the continued growth of the company and its ability to serve a major new customer. There was no technology risk with the facility, as it would be almost identical to another facility the company owned. The new plant would actually support future company growth, and would increase the attractiveness and value of the company. Quick pay-back projects that don’t hurt the company’s bottom line in the near term, and make for a more compelling growth story in the future when the owner does decide to bring his company to market, are always good ideas.

Here’s another example: The owner of an environmental services company was considering a capital spending program to position the company to enter a new market. At the same time, the company was being sold by its parent company. The implementation risk was relatively low, as the new facilities were of a modular nature that could be scaled up in the future. However, in this case the answer was, "Don’t build it."

Why not? In the second example, the company’s capital spending was linked to a new strategy, still unproven. The financial models certainly looked good, but how long would it take the company to obtain new customers? Could they successfully build the new business while also engaged in a sales transaction; or, would the sales transaction take too much of the management team’s time? Indeed, would buyers even be interested in buying the company when the financial outcome of the capital spending program was unknown? We concluded, in this case, that the commitment to a new strategy was better left to the new owners. We subsequently sold the company to a private equity group who wanted the management to focus on their core business.

Those two examples demonstrate that real life isn’t always like the movies. If you build it, the buyers may come, or they may not. If the capital spending is tied to the core business, and is essential to achieve the company’s forecasted growth, then build. If, however, the capital expenditures involve risks such as incorporating new technology, or are intended to serve new, rather than existing, customers or markets, you may be better off letting the new owners decide before committing the dollars.