Tuesday, February 01, 2005
The Perils of Debt
Media companies more wary about leverage
If you're a loyal reader of this blog--and after the few weeks we've been posting, who isn't?--you know how we feel about debt in b2b media companies. I've worked for highly leveraged companies where our annual EBITDA exceeded our debt service by just a hair--and every year was a struggle to squeeze every last penny down to the bottomline. BtoB's article, linked above, contains some useful thinking about debt, especially from Cam Bishop.
See also my post on "What's wrong with b2b media," linked to the right.
Some debt is good if it's deployed to advance the business and make sound acquisitions or launch new products and services.
How much debt is too much debt? When the amount of debt makes b2b media executives develop strategies and tactics because of the debt.
If you've been trimming an extra half percent of expenses from your properties because of debt, it's time to develop a plan to refinance or retire the debt. In my experience, once you're on the slippery slope of debt-centered management, it's nearly impossible to succeed. You cut your people and your product quality, your revenues drop, and you cut further, because you've got to make the number. And you eventually close up shop, or sell to someone.
I believe in maximizing the profitability of b2b media, but maximizing should include looking at the total profitability of the media property over a period of time, not just when the next debt payments are due.
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If you're a loyal reader of this blog--and after the few weeks we've been posting, who isn't?--you know how we feel about debt in b2b media companies. I've worked for highly leveraged companies where our annual EBITDA exceeded our debt service by just a hair--and every year was a struggle to squeeze every last penny down to the bottomline. BtoB's article, linked above, contains some useful thinking about debt, especially from Cam Bishop.
See also my post on "What's wrong with b2b media," linked to the right.
Some debt is good if it's deployed to advance the business and make sound acquisitions or launch new products and services.
How much debt is too much debt? When the amount of debt makes b2b media executives develop strategies and tactics because of the debt.
If you've been trimming an extra half percent of expenses from your properties because of debt, it's time to develop a plan to refinance or retire the debt. In my experience, once you're on the slippery slope of debt-centered management, it's nearly impossible to succeed. You cut your people and your product quality, your revenues drop, and you cut further, because you've got to make the number. And you eventually close up shop, or sell to someone.
I believe in maximizing the profitability of b2b media, but maximizing should include looking at the total profitability of the media property over a period of time, not just when the next debt payments are due.
