A Billboard Insider Reader writes: “I have always struggled when talking to owners about selling their signs and get the comment of “My cashflow is X and I heard they are selling for 12 times cashflow!” and then trying to explain to them that its Billboard Cashflow which also has a sales expense (usually 10% from what I have seen) and that it’s 12 times that number. They all seem to understand the permits, utilities, leases, and usually maintenance expense as a small operator, it always seems to get hung up on the sales aspect that they are doing themselves.”

Why billboard cashflow?

When you sell your billboard company the relevant metric buyers look at is billboard cashflow, that is, the cash generated by your billboard plant after direct expenses of the billboards.  Having a consistent definition of billboard cashflow is important to be able to compare one billboard plant with another or to provide a fair valuation to a private company whose owner has done everything possible to reduce taxes my maximizing the expenses which are run through a company.  Sales multiples will average 10-12 times billboard cashflow for a well maintained  plant with a reasonable weighted average remaining lease portfolio.

Billboard cashflow consists of:

• Billboard ad rental revenue
• plus Vinyl installation fees
• plus Rental Income (cell phone income or antenna rental of billboard space)
• less Vinyl Costs
• less Utilities including direct communications costs and bandwidth costs for your digital billboards.
• less Permit Fees
• less Maintenance Costs.  Do not include construction costs.  Include normal projects (e.g. painting, vegetation control, parts replacement).  If you do vegetation control only once every few years you can point this out to the seller and ask that the expense be annualized.
• less Lease costs
• less Property Taxes, Real Estate Taxes, Advertising or Sales Taxes which apply to the billboards.
• less an Imputed Sales Cost of 5-20% of revenue.  This last item may difficult for may sellers to accept but every buyer will have to pay sales commission to renew ad contracts or to sell new ads.  The exact amount imputed to sales may be 5-10% for a larger billboard plant and 15-20% for a smaller billboard plant.

What’s left out of billboard cashflow?

• Owners salary
• Owners cell phone and internet.
• Corporate office rent.
• Employee costs, especially if the buyer is buying assets and assuming ad contracts and leases but not taking people.
• The owners car allowance
• Capital expenditures to build new locations or digital sign conversions.
• Travel and meals and entertainment.
• Litigation fees and professional fees for new permitting.
• Depreciation and amortization expense because these are non-cash charges.
• Interest expense and financing charges.   They are a function of how you run your business, not the buyer’s concern.
• Organization dues (e.g. IBOUSA, OAAA, state associations).

What is the relevant measurement period

Calculate Billboard Cashflow using trailing 12 month figures and a consistent start and end date to smooth out seasonality.  Most out of home companies are seasonal with a low in the first quarter of each year.  You might also want to show the last two or three years of performance if there are any large one time events.

How do you calculate billboard cashflow when buying or selling.  Email davewestburg@billboardinsider.com or use the form below and we’ll do a followup article.

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