David C Barnett Small Business and Deal Making M&A SMB Depreciation vs. Capex Buyer's Biggest Mistakes
Sep 10, 2025
This discussion illuminates the crucial concepts of depreciation and capital expenditures in business transactions. Misinterpretations can lead to costly pricing mistakes for buyers and sellers. The conversation emphasizes the significance of understanding replacement costs over mere financial metrics. Listeners also gain insight into how these elements impact business valuation, particularly in small enterprises. It's a solid reminder that clarity is key to successful deal-making!
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Missed CapEx In A Buyer Coaching Call
- Barnett references a holiday chat where Ryan considered buying a site-prep company with heavy earth-moving gear.
- He admits they initially overlooked depreciation and CapEx in that call, prompting this focused episode.
Depreciation Spreads Asset Cost Over Time
- Depreciation spreads the expense of a fixed asset across its useful life for matching revenue generation.
- Accountants use different depreciation methods that change timing but not the physical need to replace assets.
Truck Depreciation Example
- Barnett uses a $100,000 truck with 30% declining balance to show how book value falls faster early on.
- He illustrates first-year half-depreciation and successive years reducing the truck's book value mathematically.