How to Increase EBITDA: Tips, Strategies

When seeking to bolster the growth of your organization, it’s vital to focus on implementing measures that increase your EBITDA so you’re best prepared to capitalize on the right opportunities and make informed decisions about how to progress.

As experts in helping clients implement cost-effective strategies and drive successful business transformations, we’ve outlined some simple yet effective ways to boost your EBITDA.

What is EBITDA?

EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortization and is commonly used as a measurement of the corporate profitability of a business. This helpful tool provides business leaders with an understanding of the financial health of their organization and information regarding their ability to generate cash flow.

Common uses of EBITDA:

• Analyzing operational profitability
• Comparing business performance across industries
• Conducting financial planning and analysis
• Facilitating M&A transactions
• Monitoring debt repayments

Tips and Strategies for Increasing EBITDA

1. Focus on reducing business expenses
2. Improve inventory management processes
3. Conduct internal and financial audits
4. Automate manual business processes
5. Consider hiring fractional or interim consultants and CFOs

Focus on reducing business expenses to increase EBITDA

Attempting to reduce business expenses is a key factor in increasing EBITDA — and compared to other, more time-consuming endeavors, the benefits of eliminating unnecessary costs are immediate.

To begin, focus on conducting a review of expenses to identify areas where you might be able to cut down – for example, renegotiating contracts, eliminating unessential services (e.g. employee travel) or consolidating suppliers.

Attempting to reduce production expenses by consolidating or switching suppliers is a great way to free up some funds and boost your EBITDA – but be mindful not to sacrifice the quality of your product or service, or else you may encounter customer friction and a decrease in sales down the line.

In addition, if your business model is suited for hybrid or remote work, consider reducing or combining office locations to decrease your real estate footprint and subsequent expenses.

The exact ways in which your business is able to reduce expenses depends largely on your situation and unique company needs – however, taking the time to analyze your business and identify areas where you can cut down on overhead spend is a quick and effective way to increase EBITDA.

Improve inventory management processes to increase EBITDA

Another method of reducing business expenses to increase EBITDA is to set up technological systems and processes to manage your inventory and keep tabs on supply chain ongoings.

Proper inventory management is essential for reducing carrying costs (such as warehousing or insurance), minimizing the potential for stockouts to occur, and increasing operational efficiency – all of which will help boost your EBITDA.

In addition, it’s essential to focus on developing strong communication processes with your suppliers. This way, if they plan to increase their prices, you’ll know well ahead of time.

Conduct internal and financial audits to eliminate costly risks and increase EBITDA

Conducting internal audits will provide your organization with visibility into areas of overspending, allowing you to develop a plan of corrective action to increase your EBITDA.

Internal audits also provide insight into how to implement better internal controls that eliminate the potential for risk to occur, such as fraud or contract violations – both of which can lead to wasted funds or having to pay unexpected costs to mitigate issues that arise.

By conducting internal audits ahead of time, you will also ensure compliance with laws and regulations, reducing the possibility of costly fines and penalties to accrue.

In addition, conducting financial audits to examine your financial statements and ensure they accurately represent your organization’s transactions is another key factor of increasing EBITDA, as doing so provides you with the ability to dive into historical financial information, ensure the accuracy of estimates and predictions, and drive reliable, informed financial decision making.

Automate manual business processes to drive operational efficiency and increase EBITDA

Automating manual business processes will allow you to cut down on overhead spend, drive operational efficiency and provide your people with more room to focus on measures that directly contribute to the growth of your business – and your EBITDA.

Examples of business processes that are well suited for automation:

• Customer service: Utilizing chat bots or phone menus instead of representatives
• HR tasks and employee onboarding
• Accounts Payable, Accounts Receivable and other expense tracking
• Invoice processing
• Inventory management
• Data entry
• Marketing, advertising and customer outreach

Consider hiring fractional or interim consultants and CFOs to identify areas where EBITDA can be increased

It can often be beneficial to turn to a consultant to help you conduct the necessary steps to increasing your EBITDA – which, while an upfront cost, will likely be offset by their identification of areas of overspending and expertise on how to safeguard your organization for growth.

A fractional or interim consultant or CFO will act as a trusted partner to help you restructure your business, identify areas where you can cut down on unnecessary costs, implement better internal controls and provide the support you need to increase EBITDA exactly where it’s needed.