Real Savings in Radio's Real World - Radio World

Real Savings in Radio's Real World

A Technical or Operations Manager Can Affect the Bottom Line in Any Number of Ways
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Few things grab an owner's or a manager's attention like a "minus" sign in front of the net profit number on an income statement.

Even though the profit side of things is the purview of the sales department, there are still plenty of ways a technical or operations manager can affect the bottom line.

Consider the typical local sales process: The local A/E develops a client, pitches the client, closes the sale, produces the spot, gets client approval for the spot, writes up the insertion order, traffic enters the order, the schedule runs for a month, traffic bills the client, the bill sits on the client's desk for 30 days (or a few days less, if you are very lucky), the invoice gets paid (if you are even luckier), the sales person takes his or her 15–20 percent, and finally … finally … the check gets deposited in the station account and the money falls to the bottom line as part of the station's profit picture.

For repeat clients, this is a 60–75 day process. For new business, it can stretch to 180 days or more.

A necessary part of our business, to be sure, but it's a long time to wait for 80 cents on the buck.

However, let's say as chief engineer, you discover a better source for that $800 final amplifier tube and buy one for just $760. That month's net revenue just improved immediately! (Plus, you presumably did not pay yourself a $6 sales commission, so the entire amount drops to the bottom line).

Every dollar you can save is a dollar immediately added to the net revenue picture of the station. What GM wouldn't love you for that?

And here's the kicker: Station values are loosely based a multiple of cash flow. In fact, a well-run station might be worth as much as 12–14 times the annual EBITDA (an acronym for Earnings, Before Interest, Taxes, Depreciation and Amortization), otherwise known as BCF, or Broadcast Cash Flow.

So, if you add that one little $40 savings to the cash flow number of your station, you just added $480 to $560 in real, tangible value to the radio station.

Saving is earning

"Fine," you might say, "but that value isn't really meaningful unless or until the station is sold."

Wrong. Banks and other lenders lend money based on the station's ability to repay. That ability is, of course, based on cash flow, so your incremental savings might partially fund an upgrade, or even an acquisition! (And I suspect that if you help your owner become a group owner, you might get a little something extra in the Christmas Stocking.)

So, how to get started? Well, if you look closely and have some patience, it is hard not to find ways in which you, as a technical manager, can save (earn) the station more money (and I am not just talking about turning off the bathroom lights, here, although that counts, too).

For example: on the subject of utilities, almost all states have deregulated electric power. Check out the station's most recent power bill for the rate you are paying and shop the service. You can always negotiate a rebate for the connection fees, and like cell phone companies, most utilities offer deep discounts for longer contracts.

If you use contract engineering services, chances are you might be paying a retainer fee. Is that absolutely necessary? Check out the average number of hours you actually use your contractor and you may find out it is cheaper to pay a straight hourly rate.

(A word of caution, though: don't pinch the penny too hard here, lest you find yourself, rather than the contractor, slogging through the mud one night to clean the electrocuted rat out of the transmitter power supply.)

Check out the spare parts inventory, as well. The days of FCC-mandated spare parts stocks are long gone, and the overnight couriers really can get you almost anything, from anywhere, overnight, so do you need to tie up an extra $1,000 hoarding all of those extra tower lamps?

At my station we used to pay a board op to come in to switch a satellite feed after a routinely scheduled (but not regularly scheduled) baseball feed. A relay panel and an extra command line on our automation system saved that expense.

Which brings up another point: Often, you will discover a way to cut expenses only to find that you have to incur a greater expense to do so.

This is not always a showstopper, for the following reasons: Operational expenses and capital expenses are treated differently for accounting purposes.

There are some arcane accounting rules that cover the exact circumstances, but essentially, operational expenses are those incurred in the daily running of the station. Salaries, utilities, those pesky sales commissions; operational expenses, all.

Capital expenses, on the other hand, involve purchases that expand the capital assets of the station. Transmitters, automation systems, furniture… those types of things constitute capital items.

Buy savings

Now, here is the reason you can spend money to save money: Capital items are not reflected in the monthly income/expense statement.

It's that simple. When you buy a transmitter, not one penny of that expense shows up on the income sheet, and therefore, does not affect the all-important EBITDA calculation.

The result? The $30K transmitter line item is recorded on the balance sheet as a brand-new station asset, and because it uses less power, the monthly expense line for power at the transmitter just decreased by $100. The $1,200 annual utility savings adds $12,000 to the value of the station (the bank will love you for that), and the asset is safely tucked away on the balance sheet, where the IRS lets the owners depreciate it (and claim the tax deduction) as it wears out.

Now, at some point, the scales tip and the cost of "buying the savings" gets so lopsided that the project cannot be justified. But don't let that stop you from exploring the possibilities.

You might be surprised at how favorably a long-term owner will look at even a fairly large capital investment. This is particularly true if the savings are regular, predictable, and sustained.

I once, for fun, ran several quicky studies to see if it was possible to relocate two of our three FM transmitters to a common tower site. As it turned out, it was possible, and as I dug into it, it became the best idea I ever had. Combined utilities (only one "demand" charge), one tower lease (instead of two, and property taxes on a third, owned tower), one standby generator, less travel time (one site to visit instead of three) — the list just kept getting better and better. All because I got a notice one day announcing a rate increase for the other tower lease.

Get serious about saving money. Don't cut things you really need, but don't be afraid to look at every single line item on your budget (and if you do not have a budget, go spend $100 on Quickbooks and develop one immediately). You won't always hit the jackpot, but when you do, you'll have an EBITDA moment!

Comment on this or any article. Write to radioworld@nbmedia.com.

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