What happens if we 'turn EBITDA upside down'?
Business profits are based on a well-thought-out plan; designed with sales and efficiency in mind. The income statement is a basic tool for monitoring financial performance; however; following it in the traditional way can cloud the vision of what is to come.
Therefore; it is useful to "turn it around" and break down the potential from EBITDA; which offers a more focused view of profits and true growth prospects. EBITDA measures the company's ability to generate profits before considering financial and accounting charges that do not directly affect operations.
Developing this indicator is crucial; as increasing EBITDA greatly improves financial health and investment potential. Reducing expenses is the most effective way to increase EBITDA. This means managing not only variable expenses; but also fixed and administrative expenses; through a thorough and ongoing review.
In Colombia; with a decoupled economic environment; being flexible and light on expenses leads to better adaptation to changes and improved margins. Reducing overheads has a direct impact on EBITDA; as it increases the company's operating margin even if there are no additional sales. But to achieve sustainable growth; cost reduction must also be combined with a commercial approach that prioritises new sales opportunities in key markets where there is margin. These markets could be sectors with low competition; speciality niches or geographical areas with high potential demand.
The answer is to know where the company can add the most value and set prices in a way that results in a healthy margin. Therefore; it is critical to strike a balance between cost reduction and business expansion. Managing the income statement based on recurring EBITDA provides business leaders with a better basis for making decisions that increase profitability and; consequently; sustained growth in an economy such as Colombia's; which needs more dynamism and adaptability.
Finally; Colombian companies that want to achieve positive results and growth must focus on reducing expenses as the action with the greatest impact on EBITDA; while seeking sales growth in strategic markets that allow them to maintain competitive margins. This mix is the way to increase profitability and ensure financial sustainability in the current environment.
