EBITDA or EBITDAC?

The term EBITDA is common practice in the financial world. The term is also frequently used by business owners, without a financial background, but do we really know what it stands for?  EBITDA means Earnings Before Interest, Taxes, Depreciation and Amortization.

The term is used as the standard for the operational cash-flow a business generates over a certain period, without taking into account the financial result, taxes, exceptional income or expenses. As we talk about cash-flow the non-cash costs as depreciations and amortizations are also excluded.

But what about EBITDAC… Earnings Before Interest, Taxes, Depreciation, Amortization and Coronavirus?

How has the Coronavirus affected you, your employees, vendors, and customers?  It is safe to say that at some level COVID-19 has impacted every business owner and their bottom line.  As restrictions ease and we return to some level of normalcy, it’s important to look back and reflect on what learnings we can glean from this and how to prepare for the future.

As an EOS Implementer, I help companies focus on three timeless principles regardless of the circumstances. EOS, the Entrepreneurial Operating System, is a complete set of simple concepts and practical tools that has helped thousands of entrepreneurs get what they want from their businesses. Implementing EOS will help you and your team get better at three things:

  • Vision—getting everyone in your organization 100% on the same page with where you’re going, and how you plan to get there.  Does everyone in the organization know where you are going and how to get there?  Is it clearly stated and communicated?  You and your leadership team should articulate or refine your vision to reflect who you are, why you exist, what you do and where you are going.  It gives you (and your company) a road map to follow.
  • Traction®—instilling focus, discipline, and accountability throughout the company so that everyone executes on that vision—every day.  This is where he “rubber meets the road” and your strategy becomes actionable.   Your people must focus on what needs to be done, you must have the necessary processes in place to act and then you should manage outcomes to get results.
  • Healthy—helping you (and your leaders) become a more cohesive, functional, healthy team.  In the book, “The Advantage” by Patrick Lecioni, to be successful, you need to be both “smart” with strategy, marketing, finance and technology AND “healthy” with minimal politics and confusion, high morale and productivity, and low turnover.  Are you building a culture that is healthy and helping you thrive?

In the midst of this pandemic, your problems and issues only get magnified.  Don’t ignore them, recognize and address them.  Once we are on the other side of this and you report EDITDAC, let us help you build a business that is ready for both the good times and bad times.  A business that allows you the freedom to balance both work life and family life, increasing in value, and gives you a future to accomplish your dreams.

New Paradigm Advisors believes you deserve to enjoy the benefits of a profitable, growing and well-run business. We help you break out of the old way of doing things and attack the new economy with a renewed passion and focus. For more information about transitioning your business, please reach out to us.  We’d love to hear from you.

Michael Visentine and The New Paradigm Advisors team

What’s the Driving Force in Your Business?

If you’re like most of us, your growth plan next year is all about some percentage of an increase in sales. Commensurate with that will be some increase in costs and expenses. Both of these are based on your current financials – what do they look like this year and over the last several years. Those give us the confidence to project into the new year.

During this time of year, I am often reminded of a lesson I learned a long time ago – about the difference between cost and expenses and investment for the purpose of a return.

What if you turned your thinking around?

I had recently sold a successful business to a partner that I had been in business with for over five years and had taken a position managing a struggling computer software-hardware distributor for a large privately held company. Our first year was nothing to brag about but we finished within our budget. The second year, however, was all mine: I set the budget, the sales projections, and other important operational details.

Since this was a foray into the new world of computers, the entire company leadership was focused.  And a big reason I was attracted to the industry and the company. As we got into the year, it became painfully clear that we were not on track to meet our sales projections.  So I began the process of paring back on expenses. Keep in mind that I had spent the previous five years in my own business, so I was watching the financials like they were my own.

In a progress and status report meeting with Ron, the company president, I was asked about the sales numbers. What were my thoughts on why we were not meeting sales projections and what my ideas were to turn them around and begin hitting them? In our discussion I made the comment that while we were not meeting the sales objectives, I was also closely monitoring and cutting our expenses so as to not get them out of alignment. His response was a wake-up call.

“Why would you do that?” he asked.

“Well, it just stands to reason that if we’re not hitting our sales numbers, we had better be cutting back on our spending.” I said, thinking, again, that this is exactly what I had been doing in my own business.

“Dave, you’ve got to change your paradigm, here.” He said. “In this business, we budget our expenses based on what it’s going to take to make the sales numbers. You have been given a budget that would drive the sales number. Why in the world would you cut back on those if you’re not meeting your sales? You’ve got it backwards. We’ve given you that money in order to achieve the sales number – that’s our return on our investment. If you’re not hitting your sales number, you need to evaluate why and how you can find the right investment to make those numbers – not cut back on the investment.”

Now, I’m going to leave that discussion right there and let it settle in. Because if you’ve been running a business for any length of time, you’ll get what Ron was driving at. We get into the habit of projecting sales and costs with the same attitude. We set the sales number and then try and figure what our costs need to be in order to hit that number – based on what we did last year. This is standard thinking. Growth thinking is another paradigm – it’s a slight twist. But that twist can bring you great rewards. Here’s the twist, if you haven’t already figured it out.

After you finish your regular projections. Reverse your thinking about your financials. Instead of thinking about what the top line is and then what your costs are going to be to achieve those. Think, instead about your costs first. The new thought: “If I spent that kind of money on a new investment, what would I want my return to be? The same as last year? Maybe a 10 or 15% increase?” How about, “What if an investor came in today and offered me a check for the amount of these expenses? What would he and I agree on would be the right ROI? What sales level and what bottom line should that check amount drive?

Additionally, throughout the year – you’ll be asking a different question. “Am I getting the return on my investment that I wanted? If not, why? Am I spending my money on the right things and people to achieve that?” This as opposed to, “I’d better cut back somewhere because I’m not hitting my sales numbers.”

I know this sounds like a minor difference, but I can’t tell you how many times I observe this. Thinking of cutting costs as opposed to evaluating ROI those costs should be driving.

Either you’re driving those costs in order to hit your ROI or the costs are driving you.

Change your paradigm and see if you don’t see a significant change in your business.

Blessings my friends.

Dave

Are You Making Plans for Next Year?

We’re talking here about your annual business planning session. The annual “how are we doing, where have we been and where are we going from here” meeting. However, if you’re looking to do the more significant strategic planning meeting, your list is going to be significantly different and will incorporate far different elements.

Here’s a brief checklist of the basic things to get done to make the most of your planning:

  1. Establish the objectives and purpose of your planning session. Include plans for all of the major business areas in your company:
    • Sales
    • Marketing
    • HR and personnel
    • Finances
    • Operations (systems and processes)
  1. Gather all the data needed to evaluate each of the above. Delegate this to the department heads when and where possible. It is important that your leadership team participate in this exercise. They (and you) will need the last 3 to 5 years of data and any comparative year to date info that has been tracked for the current year.
  2. Formulate the guidelines of the exercise to challenge your team and let them know what they are working toward.
  3. Set expectations for the new year. This will be the time to tell your team and get them all going in the direction you want. Ten percent growth year over year? Five new major clients?Five percent EBITDA growth?  You get the idea. You’re the leader.  You are the only one with a blank page. Everyone else will be working from your outline.
  4. Draft an agenda and determine how much time this planning time is going to take. One day? Two days? Delegate the planning of the program including location, food and other details.
  5. Schedule the meeting.  Put it on the calendar as soon as possible so everyone has ample time to clear everything else off their calendar. This should be a “no miss” meeting.

One final, but important, note: invite as many people as possible to participate and contribute to this, even if they are not going to be in the actual meeting. You want engagement and the best way to get it is to engage them first. If you’re a business of “one” you can still engage your closest adviser or mentor.

Good luck with your planning. If you need help in this early stage, the actual planning session or in the execution of the plan, I’m here for you. Call or text me. I’d be honored to help. Your success is my success.

Dave