The Finance Gem 💎 #84 - CEOs, M&A and EBITDA

^{Welcome to Issue #84 of The Finance Gem}

^{Today’s Finance Gems:}

1. The EBITDA Double Standard

2. The Best CEOs See Beyond the Numbers

3. Why M&A Deals Fail

^{Make 2025 your best year yet as a leader - Start Jan 29th.}

Your business is growing, and your leadership is stronger than ever. But here’s the challenge: sustaining that momentum requires mastering a skill most CEOs overlook—financial intelligence.

It’s the difference between leading a company that thrives, and one that merely survives. Without it, misaligned priorities, poor cash flow management, and inefficient resource allocation can quickly erode the value you’ve worked so hard to build.

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1. The EBITDA Double Standard

EBITDA is the metric you brag about. It’s what excites investors and impresses lenders.

But here’s the truth: EBITDA is just for show. Cash flow is what makes a business thrive.

And if you don’t understand the difference, you’re playing a dangerous game.

EBITDA is easy to calculate and easy to sell. But it doesn’t tell the real story of your business.

Here’s what it hides:

↳ Taxes are real. They eat away at cash, but EBITDA pretends they don’t exist.

↳ Debt doesn’t wait. Lenders care about EBITDA on paper, but they collect in cash.

↳ CapEx matters. Reinvesting in your business is critical for growth, but EBITDA ignores these costs.

↳ Working capital drains cash. Receivables, payables, and inventory are real pressures that EBITDA skips.

↳ Timing can kill. Paper profit won’t save you if the cash isn’t in your account when you need it.

The bad news?

You can hit your EBITDA targets and still run out of cash.

The good news?

You don’t have to pick one metric over the other.

Smart leaders know how to play the double standard: EBITDA for the show. Cash flow for the business strategy.

Here’s how:

1. Let EBITDA Do Its Job—Externally

✓ Use EBITDA to meet loan covenants, secure funding, and satisfy external stakeholders.

✓ But understand its limits—it’s a "surface-level metric".

2. Make Cash Flow Your Internal North Star

✓ Free Cash Flow tells you what’s left after the bills are paid and reinvestments are made.

✓ Cash Flow Debt Service tells you how much principal and interest you can really afford.

3. Build a Culture of Cash Flow Thinking

✓ Train your team to ask:

• How does this decision impact liquidity?

• Are we managing receivables, payables, and inventory effectively?

• Is growth sustainable based on our actual cash position?

4. Balance the Two Metrics Strategically

✓ EBITDA wins applause, but cash flow keeps you going when the applause fades.

The Takeaway:

If you rely on EBITDA alone, you’re playing to the crowd. But if you focus on cash flow, you’re building a thriving business.

Use EBITDA to impress. Use cash flow to thrive and grow. That’s how you lead your business with confidence in 2025 and beyond.

Looking to connect your EBITDA to Cash Flow and to your business valuation? Check out my exclusive and innovative 16-in-1 model.

2. The Best CEOs See Beyond the Numbers

CEOs talk growth, profits, margins and cash flow. But here’s the hard truth:

Many don’t truly understand their numbers.

They delegate everything to the CFO, chase short-term wins, and fail to link strategy with financials.

The results?

• Missed opportunities.

• Gut decisions.

• Hidden risks.

• Bad calls.

It’s not about becoming a CFO—it’s about being a CEO who can play the finance game.

When CEOs don’t master their numbers, here’s what you see:

1️⃣ Poor decisions: choices that erode long-term value

2️⃣ Missed growth: opportunities pass unnoticed

3️⃣ Hidden risks: emerging threats stay buried

The best CEOs see beyond the numbers.

They understand the drivers, align their strategies, and act with data driven confidence, not gut feelings.

Here’s how:

↳ Master the Metrics That Matter

Know the income statement, balance sheet, and cash flow like the back of your hand.

Spot the relevant metrics driving profitability, efficiency, liquidity, cash flow and solvency

↳ Align Capital With Strategy

Understand ROI, IRR, and NPV to prioritize investments that actually deliver value.

Balance growth initiatives with smart debt and equity decisions.

↳ Control Cash Flow

Cash pays the bills, not profits.

Track operating cash flow, manage working capital, and optimize your cash conversion cycle.

↳ Mitigate Risk

Build financial resilience so your company can weather market uncertainty.

↳ Communicate With Confidence

Translate company numbers into stories that align your board, team, and investors.

The Bottom Line:

Most CEOs think they’re failing because of external challenges.

The Reality:

It’s not the market. It’s not the banks. It’s not the competition.

It’s the gap between strategy and financial intelligence.

If you want to lead your business to its full potential, you need to understand your numbers—not just at a surface level, but at their core.

Your financial intelligence isn’t just a skill. It’s your competitive edge.

I've coached hundreds of CEOs and helped them scale their businesses by 20x. Join them and apply for my CEO Financial Intelligence Program: https://bit.ly/3ZCI0kr

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3. Why Most M&A Deals Fail

CEOs love M&A deals, because when they work, they get to create value out of the synergies. Effectively, 1 + 1 = 3.

But here’s the catch: M&A deals rarely work. In fact, most mergers and acquisitions transactions fail.

They promise synergies, scale, and transformative growth. But what they deliver is:

• Overpriced valuations that bleed cash

• Cultural clashes that drive talent away

• Integration chaos that derails operations

• Missed synergies that remain nothing more than promises

The result is that most M&A deals destroy value instead of creating it.

Why does this keep happening?

Because M&A is treated as a flashy shortcut to growth—when it’s really the most complex and risky move a company can make.

Here’s why most deals fall apart:

1️⃣ Strategic misalignment

Too many deals chase growth, not value.

↳ Targets don’t align with the acquirer’s core strengths or strategic goals.

↳ What you get is friction, not synergy.

2️⃣ Overpaying for potential

In the heat of the deal, discipline disappears.

↳ CEOs pay a premium for hype, locking in underperformance

↳ What you get is a fast track to failure.

3️⃣ Synergies that never materialize

Synergies sell the deal, but they rarely show up.

↳ Cost synergies underestimate the complexity.

↳ Revenue synergies overestimate market realities.

↳ Without a detailed execution plan, synergies stay on paper.

4️⃣ Cultural Clashes

Merging two companies means merging two cultures—and that’s where things get messy.

↳ Misalignment drains morale, causes talent to flee, and stalls progress.

↳ Cultural diligence should be as rigorous as financial diligence.

5️⃣ Integration Failure

Integration is the graveyard of M&A deals.

↳ CEOs treat it as an afterthought instead of a priority.

↳ No detailed plans.

↳ Limited resources.

Here’s what all this means for CEOs: M&A isn’t a shortcut to market dominance—it’s a calculated risk. So to win, you need:

↳ Strategic alignment: Align every deal with your core goals.

↳ Valuation discipline: Walk away when the price doesn’t make sense.

↳ Grounded synergies: Build plans based on operational reality.

↳ Cultural alignment: Treat culture as a make-or-break factor.

↳ Appropriate financing: Align financing structures with cash flow patterns

↳ Integration planning: Start before the deal is signed, not after.

Remember:

Most deals fail because they skip the hard work in favor of the headlines.

M&A isn’t magic. It’s not 1 + 1 = 3.

It’s strategy, execution, and discipline. If you’re not ready to play that game, you’re better off not playing at all.

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