CLIENT STORIES FINANCIAL CHALLENGES & OUR SOLUTIONS
Client Challenge
Client: Plastic Film Manufacturer
A competitor approached the company with a purchase offer. The company's owners did not like what was offered (believed it was too low). Their investment advisor advised the company that the offer appeared to be fair based on the company's EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization). The company rejected the offer and asked for my help to guide them in determining a true market value for the company.
Our Solution
I explained the following for the company's management:

1) EBITDA: What it stood for, and how it was calculated. I also mentioned that the -higher the EBITDA, the better. I provided a schedule calculating the company's EBITDA for the past three years.

2) Other Ratios With EBITDA: I also indicated other ratios/metrics that contain EBITDA. I indicated what the ratio/metric measured, what information it was providing an investor/banker and which direction the ratio should be positively trending. I also provided a schedule calculating these ratios with the company's results for the past three years.

3) Example How EBITDA Could Be Improved: I gave an example of what could be done to improve EBITDA, and walked through the EBITDA calculation to show how it improved.

4) EBITDA and a Company's Value: I explained how EBITDA is one measure of a company's value. I explained how, when companies are sold, it is usually at a multiple of EBITDA. I provided multiple ranges for the industry that the client was in and showed what their value would be based on the year with the lowest EBITDA and the year with the highest EBITDA (to illustrate the range, and support driving to higher EBITDA).
In addition to discussing this with company management, I gave them a written presentation that they could use as a reference document going forward.
Outcome
The client's management team declined the purchase offer and resolved to implement various operational changes to improve the company's profitability, thereby increasing its selling value.
Client Challenge
Client: Service firm supporting media advertisers
While working on a forecast for the remaining half of the year I realized that the EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) that was in the forecast for the remainder of the year was less than the EBITDA for the last half of the prior year. The company had a loan with a bank that had an EBITDA covenant. I put together a schedule that allowed a reader to easily see what I saw (that the covenant would be broken), sometime in the next two to three months – depending how well actuals tracked to forecast.
Our Solution
I passed the schedule on to the CFO, who agreed with my conclusions. He then provided the information to the company's Board. Several of us sprang into action. After determining what our maximum shortfall would be over the next twelve months, we came up with cost cutting initiatives that would in annual EBITDA savings of the maximum shortfall. Those initiatives were reviewed with the Board and approved.The CFO and I met with the bank, told them that the company would be breaking the EBITDA covenant and the cost cutting initiatives that were approved to get the company back on track. The bank was pleased that we identified it early, had identified and started executing plans to rectify the situation. We were able to turn a potentially bad situation into one where we improved our relationship/credibility with the bank. Additionally, the schedule that I put together became a standard report included in the Board's monthly financial reporting package.
Outcome
After determining what our maximum shortfall would be over the next twelve months, we came up with cost cutting initiatives that would in annual EBITDA savings and significantly reduce the cash shortfall.