March 22, 2016
EBITDA is a financial acronym. It stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It is basically your net sales: gross sales minus operational expenses. The more thorough way to calculate it is to start with your bottom line and then add back interest, taxes, depreciation, and amortization. The result is your company’s EBITDA.
EBITDA is the key acquisition metric. A prerequisite to a strong EBITDA is a strong top line. You can’t have the former without the latter. The best way to improve your EBITDA is to improve your top line (gross sales). You can do this on your own, but often the more effective way is to bring in a sales and marketing service company that can increase gross sales in a methodical, controlled manner, month after month. This is the quickest way to increase gross sales, which will positively improve your EBITDA.
While tracking EBITDA is not relevant for the day-to-day operation of your telephone answering service, it is important. EBITDA is perhaps the most critical financial metric for your long-term financial future. The reason is simple. Eventually you will sell your answering service, be it for retirement, to pursue other interests, or some other reason. To obtain the best sales price, you will likely seek one of the key acquirers of telephone answering services. Most of them make their offers based on your EBITDA.
Though interest, taxes, depreciation, and amortization are all of concern, these numbers will change with new ownership. The new owners will finance different things and will have a dissimilar interest rate. Their tax situation will be unlike yours, so their taxes will change as well. Last, they will have new depreciation and amortization schedules for the acquired assets. EBITDA backs out your numbers and lets them apply theirs. Most of those in the acquisitions market will also back out owner compensation, as that, too, will change.
While we don’t think of EBITDA everyday as we run our telephone answering services, we do need to track it over time and do what we can to improve it. Too many answering services are sold when their EBITDA is low, which is precisely the wrong time to sell.
Plan ahead so you can sell high.
Janet Livingston is the president of Call Center Sales Pro, a premier sales and marketing service provider for the call center and telephone answering service industry. Contact Janet at firstname.lastname@example.org or 800-901-7706.
Peter Lyle DeHaan is a freelance writer from Southwest Michigan.
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