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It's done! At times it was taking a physical and mental toll on me and the result was I wasn't sleeping at night. I took sleeping pills, but even Ambien and lavender spray on my pillows were of no use. I would lie there in bed just staring up at the ceiling.
As if my sleeping problems were not bad enough, I then encountered serious writer's block for the first time in 30 years of writing columns and articles on behalf of the printing industry. I went for a period of almost three weeks where every single day was a repeat of the day before—totally wasted with nothing accomplished.
I would come to work with what I thought was a renewed determination to jump back on the project, only to find myself totally distracted within the first couple of hours and then finally saying to myself, "Just forget today. I'll come in tomorrow and get right back on the project and spend all day at the computer." The next day would be a repeat of the day before. It definitely was a mental thing.
Well, thanks to encouragement from Mary—and more drugs—I finally got over my problems and not only is the project done, but I now have a new enthusiasm for this industry. So much so that I've already got plans to jump on a couple of brand new projects I've been thinking about. To be candid, I would love to write a novel, but Mary says I don't have the discipline to sit down and write the 10-15 pages a day that it would take. She tells me I have been totally undisciplined and irresponsible for the 30 years we've been married, so why would things change now? Good question.
Oh, so you want to know about the project I've been working on? Well, here's the story.
What's My Business Worth?
Hardly a week goes by that I don't get a call from people around the country. Some calls are from printers who have been reading my columns for years and they want to know if I can help them value their business or point them in the right direction. Some calls are from lawyers who want me to testify in court as to the value of their client's business. Those typically involve divorces or the buyout of a partner.
Surprisingly enough, I even get calls from folks who have never been in the printing industry, but who actually want to get into this rat race and they want my advice or assistance in valuing specific printing businesses. I'm often surprised at how these folks even track me down. But Google and Yahoo are amazing tools, and you don't have to put in too many pertinent search words before my name pops up as a possible resource.
The calls involving valuations and requests for help have increased substantially in the past couple of years. Heck, I know printing pretty well, and I know the key ratios better than most, but I sure never saw myself as an M&A expert. In fact, the first time I ever heard of M&A I was too embarrassed to raise my hand and ask, "What the heck does M&A stand for?" It turns out it means mergers and acquisitions, and it's one of those acronyms everyone in business is supposed to know. Now you know the acronym as well.
As an example, just a few minutes ago I received a call from a printing franchisee in Texas. He told me he is doing about $400,000 in sales, is very profitable, and is looking to get out of the business. He had called his franchise headquarters and they suggested he call me for help with a valuation. I get these types of calls quite often. So does my friend and fellow consultant Larry Hunt. I suppose other experts such as Mitch Evans and Tom Crouser get an equal number of calls.
"Eureka!" Moment
About six months ago, I was between industry reports and bored to tears. I wanted a project I could sink my teeth into, when suddenly I had one of those "Eureka!" moments. With all these calls from printers wanting to sell their businesses, I wondered if Larry Hunt would be interested in updating his old book titled, "How Much Is Your Printing Business Worth?" which was published in 1982. The book, now out of print, was a best seller at the time and presented a concise and very well thought out approach for valuing a printing business.
Before I called Larry, I started doing some research on my own and buying up books on valuation approaches. The more I looked and the more calls I received, the more convinced I was that it was time to publish a new book—one aimed specifically at the quick and small commercial printing companies with annual sales in the $250,000 to $5 million range.
Well, I finally made the call to Larry a few days after that "Eureka!" moment and the rest, as they say, is history. The project is now done. Larry Hunt and I have just released a 300-plus page book titled, "Print Shop For Sale." The subtitle for the book sort of says it all, "A step-by-step guide for establishing a fair market value for your printing firm, or one you are looking to buy."
The book consists of 14 chapters plus an appendix of 100 pages containing standard valuations for companies ranging in size from $250,000 to $5 million in sales, including variables based upon net assets and owner's compensation.
We Surveyed the Industry
When Larry and I first began the project we decided the first step would call for surveying existing printers to find out what they knew about valuations and how they might approach a typical company valuation. We created a fictional company named Premier Digital Printing and assigned financial data to it that closely matched that of an average firm in the industry. We then asked our survey participants to provide us with a valuation for the firm. Premier, according to the data we provided, reported $998,000 in sales in 2005 and an owner's compensation of 13.9%. We provided a number of key ratios related to depreciation, a breakdown of sales, and a condensed balance sheet.
Approximately 120 business owners completed the survey. These owners estimated the average fair market value of Premier at $528,015. The median estimated value was $485,000. Despite the fact that everyone was working off the same data, the range of valuations was startling. With sales volume of $998,000 for the company, the business valuations ranged from a low of $250,000 to a high of $1 million (four respondents).
We asked our survey participants to provide us with the formulas and approaches they used in their valuations and we received almost 105 different answers. Some provided overly simplistic formulas based upon nothing more than sales volume, while others took a half page or more to explain their approach.
The Hunt-Stewart Approach
For purposes of the new book, Larry and I developed a revised version of his original formula. Two refinements were made. One was designed to account for higher salaries and fringe benefits, and the second was to develop what we hoped would be an industry standard method for calculating an excess earnings multiplier.
The recommended method used to determine business value is based on the following premise, which is quoted in the book: "For a business to have any appreciable value to a potential buyer, it must produce cash flow above and beyond what would be required to pay a fair market salary to the new owner or manager. It is this 'excess cash flow' or 'excess earnings' that is used to purchase the business from the former owner."
Unfortunately for some owners, their businesses simply do not produce any appreciable excess earnings, thus the value of the business may be little more than the fair market value of their hard assets. That means the current "street price" of their equipment, furniture, and fixtures, assuming a qualified buyer can be found.
For other owners, their businesses have substantial value. Not only have these owners been able to withdraw substantial salaries and benefits over the years, but the value of their businesses has increased steadily because of their ability to produce a steady—and growing—stream of excess earnings.
As mentioned earlier, our new book consists of 14 chapters which attempt to explain our simplified, although not always satisfying, valuation of a printing business. "Print Shop For Sale" also introduces our unique valuation questionnaire, which consists of 14 key questions. The scores for the questions are weighted, meaning that responses to some questions count more than others. The end result, however, is an essential element in our valuation process since it helps to determine one of the key ingredients of our formula—the excess earnings multiplier.
Some of the key terms and phrases covered in detail in the book include:
- Net Owner's Compensation: And why your spouse is not included.
- Owner's Salary & Fringes: What's the minimum you deserve?
- Excess Earnings: The missing ingredient in most businesses.
- Net Assets: What you're selling and what you're keeping?
- Return on Net Assets: What's it mean and why should a seller expect it?
- Excess Earnings Multiplier: The essence of the valuation process.
Valuations for Sample Companies
"Print Shop For Sale" not only explains various valuation methods, it also includes a detailed valuation scenario for Premier Digital Graphics as well as seven other typical firms. Some of the fictional firms we valued in the book include:
- National Print & Copy: A single location, national franchise company with slightly higher than average profits and annual sales approaching $1 million.
- Academy Printing & Graphics: A relatively low profit, single location firm with annual sales at the $2.1 million level.
- Riverview Printing: A high-profit single location firm with annual sales of approximately $800,000.
- Copy & Print Solutions: A low sales volume firm (sales approximately $500,000) with slightly above average profits.
The book also includes chapters with advice for both sellers and buyers. In the chapter for sellers, there are suggestions on what they can do to improve the value of their business. The buyers are given several keys to look for when checking out a printing firm for sale.
While most readers will agree with the logic used to establish value, some will not be pleased with the valuations arrived at for their own businesses, especially those who have relied on old wives tales and rules of thumb for valuing businesses. However, we think many readers will find solid information and arguments for arriving at a fair market value of the printing business in question.
Available Now, But Not Everywhere
This is not a James Patterson or Nelson DeMille novel. It lacks steamy sex scenes and political intrigue, thus you probably won't find it at your local Barnes & Noble. However, for those interested in the more mundane questions in life such as, "What the heck is my business worth," or "I wonder if that print shop is really worth what the owner is asking," you can get information from several sources. You can read more about it in the full-page ad that appears in this issue of Quick Printing. You can visit anyone of three websites to obtain further info: My site at www.quickconsultant.com; Larry Hunt's website at www.larryhunt.com, or a brand new website titled, www.printshopforsale.net.
Senior contributing columnist John Stewart owns Paragon Printing & Graphics and is president of Q.P. Consulting Inc. Contact him at 2110 S. Dairy Road, West Melbourne, FL 32904; call 321/727-2444; email qkconsult@aol.com; or visit his website at www.quickconsultant.com.
author: by John Stewart