Around the Web: A Week in Summary
A recent article from Chris Mercer entitled “EBITDA: Relative Capital Intensity Influences Business Valuation” explains the importance of business owners understanding the relationship between EBIDTA and EBIT at a point in time, over time, and in comparison to other companies.
For industries that have a high capital intensity, the EBIDTA multiples decrease. This is because as depreciation and amortization increases (indicating an increase in capital intensity), the EBITDA depreciation factor, which is defined as EBITDA/EBIT, increases. In order to calculate the EBITDA multiples, you would divide the EBIT multiples by the EBITDA depreciation factor. Examples can be seen illustrated in the charts in the article.
A recent article from Divestopedia entitled “Don’t Overlook the Value of a Well-Defined Business Model” discusses how to generate and keep investor interest in your business by developing an elevator speech that simply and succinctly describes the uniqueness of your business.
Your business model is core to your elevator speech. In order to set your business apart from the rest, you must be able to briefly and specifically tell a potential buyer or investor exactly how your business makes money. Therefore, it is paramount that a small business owner clearly defines and outlines their business model. When defining your business model, be sure to avoid the following:
- Being too general – Many business owners want to label their business model as “buy low, sell high”. This will potentially turn off an investor or buyer. It’s too general, and commonplace. What sets your business apart from the rest? What makes it sustainable long term?
- Focusing on what you have now and leaving out how you plan to evolve as a company – In our fast evolving and technology-based market, potential investors don’t just want to hear about how great your product is. They want to hear about what plans you have in place to stay ahead of the copy-cats, thieves and competition.
- Being stuck on a particular business model – Evaluate what models have withstood the test of time, and which ones have not. Which category does your business fall under? Can a tried-and-true model be adapted to fit your business’s products or services, and maybe give you a competitive edge?
- Sticking to a classic sales structure – Whenever possible, implement an aaS or SaaS (as a service or software as a service) business model. Investors seek businesses running on these models because they provide recurring revenue.