Sunday, December 10, 2006

Watch Your Numbers

This week an entrepreneur showed me a one-page summary he had sent to an Angel investing group. "Why did they turn me down?" he asked.

After I quick glance, it was obvious. His EBITDA was higher than his Revenues. I told him. I also told him that was impossible.

"Do you know what EBITDA is?" I asked. "Oh, sure," He could rattle off what the acronym means, "Earnings Before Interest Taxes Depreciation and Amortization."

But how many entrepreneurs know what that really means or why it's important? EBITDA is another name for Operating Profits. It's essentially a proxy for your cash flow from operations. That's why it's so important to investors. That's why it should be important to you -- the business owner.

For investors (and for savvy business owners), the numbers tell the story of your business. You need to spend the most time figuring out your costs and your revenue assumptions. If you can't, then you need professional help.

The SBA Web site has free help. SCORE has free help. Or you can hire a professional to help you. (like me --

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