I was asked to give a short talk to a group group of people interested in entering the out of home advertising business. I highlighted five things based on 30 years experience in the out of home business as a lender, investor and Co-Publisher of Billboard Insider.
Billboards are not passive income
Billboards are not passive income. There’s a deceptive idea that you can make lots of money in the out of home industry without any work. That’s wrong. Billboards do not operate themselves. Billboards do not maintain themselves. Billboards do not sell themselves. The companies which thrive in the out of home business are run by someone who looks after the business full time. If you don’t devote 100% of your time to the business but you need a full time manager
You need skin in the game.
You need to use your own money before you use money from other people or the bank. This shows you believe in what you are doing. I usually advise people to build their first billboard with their own money and then to pledge that billboard as collateral for a loan to grow their business. Another alternative is to put at least 20% down on new sign construction. I don’t know any lenders who do 100% debt financing on a new billboard for a new borrower. And if you borrow money you need to be willing to personally guarantee the debt.
Two faces isn’t always better than one face when it comes to digital.
Just because you can put up a double-sided digital billboard doesn’t mean you should. Digital billboards are expensive. They can cost as much as $125,000 a face. Not every location is good for a two sided digital. Not every face has demand 6-8 ads. Maybe the face going into town should be digital and the face going out of town should be static. Maybe the face headed towards the beach should be digital and the face headed away from the beach should be static. Maybe the right hand read should be digital and the left hand read should be static. Maybe the side with the best approach should be digital and the side with the poorest approach should be static.
It’s all about EBITDA.
EBITDA is an acronym for earnings before interest, depreciation, amortization and taxes. It represents the cash that you have in your business generates after paying normal cash expenses. EBITDA is the money that you have to pay debt, make dividends or to reinvest in capital expenditures. EBITDA is more important for an out of home company than net income (revenue less all expenses of a business) because most out of home companies have huge non cash depreciation and amortization charges.
Vendors Matter.
The success of you company depends in part on the quality of your vendors. Establish vendor relationships before you need them. Tomorrow we will talk more about out of home vendors.
To receive a free morning newsletter with each day’s Billboard insider articles email info@billboardinsider.com with the word “Subscribe” in the title. Our newsletter is free and we don’t sell our subscriber list.
Paid Advertisement
