I did my annual National Association of Broadcasters (NAB) ½ day finance presentation in our nation’s capital. It was a hot and muggy day as is almost always the case in Washington D.C. These classes are always great. Most of the attendees are owners or general managers of local television and radio businesses with a few of the big broadcasters mixed in. I always enjoy training small business types. Their issues and interests are closer to my own.
The questions in the class center around two things that all small business owners focus on financially. The first focus is EBITDA (earnings before interest taxes depreciation and amortization). This metric is important to these folks because they know that most small businesses are valued by a multiple of EBITDA. For example, if your business does $2 million EBITDA and your industry is selling businesses at around 7 times EBITDA, you are likely to sell your business for about $14 million. You can imagine with this group, growing EBITDA is important. It also helps to understand why EBITDA is so critical to potential investors. (EBITDA gives an investor a quick look at both profit and potential cash flow in one metric).
The second focus for these small business operators is cash flow. In a small business you know that when you run out of cash and miss payroll the party is over. As you grow and need to raise money, your ability to raise cash through banks and other finance resources is linked to your ability to generate cash in the business, so cash is always cool to these folks.
There is always lots of good questions and discussion. The hotel I stayed at is called the Topaz right next to NAB offices; it’s a nice boutique hotel. I like getting out into the muggy city to see the Smithsonian art gallery. There is nothing like some great finance mixed in with a little Van Gogh and Monet.