EBITDA – What Does It Mean To You??

If you are just starting your own business, great! If you already have a business, GREAT!! It really does not matter what stage you are currently facing. You MUST have one GOAL in mind when you begin a business.

BUILD YOUR BUSINESS TO SELL!!!

This is the ONLY good reason to start or run your own business. An ideal plan is to set yourself up to sell out and start over every 5 years until you reach the ultimate goal to RETIRE. Obviously, this is not an easy thing to do, but it certainly is a great goal to set into your business plan. Hopefully, you won’t have to face a recession every 5 to 6 years as we did in our 40 plus years business life.

What is EBITDA?? This is a formula that plays into how much you can expect someone to pay for your business in the future. Code: E = earnings; B = before; I = interest; T = taxes; D = depreciation; and the A = amortization. It says, what are your EARNINGS BEFORE INTEREST / TAXES / DEPRECIATION / and AMORTIZATION.

What is your Cash Flow? Your Receivables? Sales Dollars? Expenses? Any buyer will want to know answers to these questions. Plus many more in deciding if they want to buy your business. Another major concern is…who are your customers/clients? How many? Volume of annual business with each? Loyalty to your firm? Will you stay and run the business for the new buyer? Will you carry the note or do you require all cash? Part cash/part stock in a public firm?

You need to know that a publicly traded firm (stock on one of the exchanges) can and will (most likely) pay more for your business than a private suitor. It never hurts to let both private and public firms make you an offer to buy, as you have no way of knowing WHY anybody wants your firm. Everyone will have a different reason based on their future goals and plans in the marketplace.

Just understand NOBODY will love the company like you do today. It’s your BABY. You have raised it from infancy and your life BLOOD / SWEAT and TEARS are all tied up in YOUR value but NOT in the way a buyer will see it. Don’t get your feelings hurt in the process if you really want to sell your business

BUSINESS TIP: A smart business person BUILDS his / her business with ONE GOAL in mind – to turn their effort into VALUE $$$ for a BUYER. NEVER sell to the 1st buyer! Create an AUCTION. People buy a business for reasons YOU may never understand. NOT important! HIRE YOURSELF A DEAL MAKER!!