Business Owner: We have a goal of 20% EBITDA.
Me: How did you come up with that goal?
Owner: We want to double our EBITDA in 5 years.
Me: Do you realize that the best-in-class EBITDA for your industry is 14%? You’re saying you want profitability to be almost 50% better than the best performing company in your industry.
Owner: I didn’t know that.
Me: Is the industry as a whole going to double in profitability?
Owner: I don’t think so.
Me: Are you going to introduce a new product or process that will enable you to dramatically increase price, decrease expense, or both?
The bottom line: you cannot set financial targets without understanding the realities of your market.
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