Use this worksheet to evaluate whether capital expenditures (CapEx) have been properly accounted for in free cash flow estimates.

Step 1: Identify CapEx Drivers

• Is the business equipment-heavy?
• Are assets aging or near replacement?
• Are there deferred upgrades or repairs?
• Is CapEx needed to maintain revenue (not just growth)?

Step 2: Normalize CapEx

• Review historical CapEx trends (3–5 years)
• Compare CapEx to depreciation
• Consult industry benchmarks
• Estimate recurring (maintenance) CapEx vs. growth CapEx

Step 3: Adjust Free Cash Flow

• Free Cash Flow (Enterprise Level) = EBIT – Taxes – Maintenance CapEx – Changes in WC (simplified)
• Replace reported or assumed CapEx with a normalized figure

Red Flags

• No CapEx shown in a business with fixed assets
• ‘One-time’ expenses that recur annually
• Repairs classified as CapEx or vice versa

SBA SOP Tip

Underwriting and valuations must reflect sustainable, maintainable cash flow. Ignoring CapEx overstates free cash flow and valuation.