What is EBIDTA? What Are Healthy Profit Margins for a Business?
Show Notes
A Thriver asks, what are healthy profit margins for a business and what is a healthy amount of debt to carry with your small business and what is EBIDTA??
Question:
Maybe a question for the accountant. What do you recommend as a healthy debt: EBIDTA ratio in general? For service businesses? For medical practices?
FUN FACT – Definition of EBIDTA. Earnings Before Interest, Taxes, Depreciation and Amortization. This figure measures a company’s annual earnings before the subtraction of interest payments, taxes, depreciation, and amortization. EBITDA demonstrates a company’s earnings based solely on their operations.
The Markup Rule: Make sure that your business is bankable
Retail – As a general rule…items are marked up by 100%, however in other industries that markup is much higher:
Text Message Services – 6,000%
Carbonated Beverages at Restaurants – 1,150% markup
Wine at Restaurants – 400% markup
https://www.businessinsider.com/products-high-markups-2014-7
Pricing 101 – https://images.app.goo.gl/t4965eKGZWpFHLoD8
NOTABLE QUOTABLE – “You’ve found market price when buyers complain but still pay.” – Paul Graham (The man who is best known for his work founding Viaweb, which was later renamed as the Yahoo! Store and the for being behind the Y-Combinator, entrepreneur incubator program that is famous for launching AirBNB, Dropbox, Reddit, etc.)
The Debt Rule:
Only have debt that allows you to sleep peacefully when most things go wrong.
NOTABLE QUOTABLE – “The rich rule over the poor, and the borrower is slave to the lender.” – Proverbs 22:7
