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Money Talks: Decode Net Income and EBITDA Like a Pro

The Lesson

Alright, folks, let's talk numbers—but don't worry, I'll keep it fun! Net income and EBITDA might sound like boring accounting jargon, but they're actually your business's best friends. Think of net income as your business's "take-home pay" after all expenses, taxes, and costs. It's what you really have left after everything. EBITDA, on the other hand, stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It's a mouthful, but it's super helpful for understanding your company's operational performance without getting bogged down by all the extras. I struggled in the early Tenzo years without this knowledge. 

Definitions: 

Net Income - the total amount of profit a company makes after subtracting all its expenses, taxes, and costs from its total revenue. It's a key indicator of a company's financial health and profitability, showing how much money the business retains after all expenses are paid.

EBITDA - a financial metric used to evaluate a company's operating performance by focusing on earnings before the influence of financial and accounting decisions. EBITDA provides a clearer view of a company's core profitability by excluding expenses related to interest, taxes, and the non-cash costs of depreciation and amortization.

The Story

When we first launched Tenzo, the numbers game was like trying to understand a foreign language. One time, we thought we were rolling in cash because our top line looked great. Then, reality check: we saw our net income, and it was like, "Whoa, where did it all go?" That's when we started digging into EBITDA. It was a game-changer! It showed us where we were really excelling and where we needed to tighten the belt. One of our key takeaways was realizing that a high EBITDA margin doesn't just mean we're making money—it means we're making money efficiently. That efficiency was a sign we were doing something right and helped us attract investors who love a good EBITDA story.

Why Net Income Rules EBITDA.

EBITDA while a great metric, does not take into account the full costs. Especially in consumer companies, where almost everyone relies on healthy amounts of debt (working cap, etc), you really need to hone into Net Income to account for all your costs. A lot of people say “focus on EBITDA” - they are wrong, you should be focused on maximizing your net income instead. Reduce debt, reduce interest payments, and grow net income. One of my all-time favorite businesspeople, Charlie Munger, said it best:

“Every time you hear EBITDA, just substitute it with 'bullsh*t'.”

Additional Inspo and Content

So, next time you're looking at your financials, don't just stop at the revenue line. Dive into net income and EBITDA. These numbers aren't just for accountants—they're for you, the business owner, the operator. They can tell you where to invest more time and resources and where to pull back. And remember, understanding your numbers isn't just about being profitable; it's about being profitable in the smartest way possible.

Keep grinding, keep learning, and remember: the more you know, the more you grow! Let's decode these numbers and boost your business to new heights!

Here are the best things I read, watched, or listened to last week.

• Sales beliefs by Ryan Neu.

• The Little Tech Agenda.

• How to Spot High Agency People.

• Book Rec: The Sales Acceleration Formula by Mark Roberge

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Risk it for the biscuit 🍪 #sailgp #sailing #sailracing

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Thanks for being a part of this journey! Remember, mastering your business finances is key to unlocking your full potential. 📊 Keep pushing forward, stay inspired, and let’s continue to grow together. Until next time, let’s make it happen! 💪 Don’t wait on Finaloop - reply if you’d like a direct connection.

Peace out 👋

Steve

Founder Tenzo & Commerce Chronicles

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