My Airplane - N819CD

Someone asked me if I had a picture of the airplane.... Heck, I have more pictures of my airplane than I do of my grandchildren.

The plane is a late-model 2002 SR20, and the one feature that makes this plane stand-out above the rest (in addition to its smooth lines and all composite construction) is that the plane incorporates a built-in parachute. The parachute is located in the fuselage, beneath the fiberglass just above the large letters "CD" near the tail. The parachute is not something you pull casually, because the plane is likely to be totalled, even though it is pretty much guaranteed (if properly deployed) to lower the plane and its passengers safely to the earth. It is a very large chute and is deployed by an equally powerful rocket which is also built into the plane.

The Cirrus Aircraft outsells all other manfacturers when it comes to single-engine aircraft, far surpassing companies such as Piper and Cessna. The SR20 cruises at approximately 145 knots, or about 165 mph, thus cutting a drive from Melbourne to Tampa from two hours and 30 minutes to 45-50 minutes. I land at Tampa International where the local FBO waives parking and landing fees, and then they allow me to keep a car indefinitely in their parking lot at no extra charge.

"Six Pack" Instruments for Printing

Mention the phrase "six pack" to pilots and they automatically know you aren't referring to a six pack of Coors or Budweiser but rather to six specific instruments we all rely on when it comes to flying airplanes.

My November column of the Quick Consultant deals with these six indicators and suggests that you need to scan them all, rather than fixate on just one or two. Although the artwork is not as clean as I would like, I believe you can still read the titles of each instrument. You can also click on the artwork to see a much cleaner version of the panel.

Unlike pilots who rely on all six instruments when flying in bad weather, printers all too often tend to ignore the instruments (or key indicators) that can keep them flying straight and level - even when they can't see anything outside of the cockpit.

Here's my "six pack" of key instruments for printers: (for approximate ranges, click on the artwork above and you will be able to read the scales clearly.)

1. Profit & Loss Statements and how frequently they are received and studied are critical; The more frequently you receive them and study them closely, the less likely you are to find yourself inadvertently flying in bad weather.
2. Payroll Costs as a Percent of Sales; Although it is the most important indicator on a printer's P&L, it is often one of the hardest to calculate thanks to misunderstandings of accountants and CPA's as to what we are looking for.
3. Paper Costs, while smaller in comparison than payroll costs, can also reveal a great deal about the health of a company;
4. Sales Per Employee - we talk about this ratio all the time, but many printers continue to ignore this early warning sign, and just figure it will improve next month!
5. The Current Ratio, which can be calculated using balance sheet data, can be used to predict liquidity and your ability the weather some bad storms ahead;
6. Owner's Compensation, if not calculated correctly, can be misleading, especially if you make the mistake of including a spouse or partner's compensation into this ratio.

Throw Out Your Three Year Plan

I recently exchanged emails with a former client. Included with the emails were copies of the most recent financial statements. The company has shown improvement since its 2008 year-end financial statements, but the improvements are coming far too slow and far too late in the game to save this company.

Always timid to make dramatic changes with a "sense of urgency," this owner recently set out to turn his company around with a "three-year plan." Unfortunately, the numbers indicate he will be out of business long before he reaches the three-year mark.

In 2008 the company lost ($140,000) or -24% on sales approximately $570,000. For the first nine months of 2009, the company has lost an additional ($46,500) or -14.5% of sales. How an owner can even sleep at night with financial statements like this is beyond me.

The company's payroll costs, excluding the modest amount taken out by the owner, has ranged from 48% in 2008 to 40% in 2009! Paper costs have ranged around 15% of sales. Rent is running 12% of sales. Any one of these ratios should have caused a "warning siren" to go off, but if it did this owner simply wasn't listening.

Folks, when you start seeing ratios like these, it's time to take immediate steps to stop the hemorrhaging! You don't decide to wait another few months to see if by chance a miracle happens, you must take steps immediately!

This company has known for more than three years that its payroll costs have consistently been running 30-50% higher than what they should be, and yet the owner has used one excuse after another to avoid making severe reductions in staffing.

While the rest of the industry is is using a total of 3.5 to 4 employees to produce $420,000 in sales (that's what is projected for this year), this company seems to require 5 FT employees, including the owner to produce those sales. Something is wrong with this picture, but the owner has simply turned a blind eye to this and many other issues, month after month and year after year.

Even worse, this company has known for more than six months that it was occupying a space twice as large as it needed and thus paying twice the industry norm for rent. While landlords and tenants across the country have been coming to terms and making adjustments on leases, this owner has done nothing more than make one mild appeal to the landlord. The landlord responded that he was in trouble himself and was in no position to help!

During my conversations with the owner, I was shocked to hear that this print shop owner seems to empathize more with the landlord's predicament than he does with his own business. Suffice it to say, unless all of your other ratios are lower than industry benchmarks, you simply can't pay 12% of sales for rent and expect to keep your doors open.

Not all stories have good endings. This is one of them. On multiple occasions I have stressed that what this business needs is not a three-year plan, but a three-week plan but I know it isn't going to happen. Sometimes you would like to reach out and shake these owners but you can't. You can put the fear of God in them, but you can't force them to do what needs to be done.

P.S. You can subscribe to this blog and read new entries as they are posted by using the button near the upper right hand corner of this blog, just beneath the "archives."

Owner Mistakenly Forgets Wife's Salary (Part 2)

As noted in the previous blog, the initial valuation for this company was quite healthy, but it had been predicated on information provided by Chris, the owner.

Just prior to my sending off the valuation, Chris casually mentioned, for the very first time, that his wife, Cathy, was actively involved in the business. However, no where in the list of employees or salary breakdowns had there been a hint that this was the situation. This was a major oversight on someone's part. I'll take at least part of the blame for failing to double-check with the owner if his spouse was involved in the business. It won't happen again.

So what did that oversight do to the value of the business? The valuation, which had originally been pegged at approximately $335,000 dropped to approximately $205,000! How could that happen?

Without boring you with details, once it was discovered that the original owner's compensation claim of $100,000 included compensation for the spouse, that figure had to be reduced by a fair-market estimate of what a new owner would have to pay to hire someone to replace the spouse. We agreed we might be able to find someone to handle the tasks performed by Cathy for $14.50 per hour but with taxes and benefits that totals approximately $35,500 per year. Consequently, the original owner's compensation of $100,000 was now reduced to $64,500!

Our valuation method, like many, relies on a multiplier that is applied to what we term "excess earnings." So as not to bore you with details, suffice it to say a reduction of $35,500 in owner's compensation actually results in a decrease in a company's valuation by three to five times that amount. In this specific situation, the adjustment we made resulted in a decrease in value for this company of approximately $125,000!

As we've often joked at seminars, the only way this adjustment or decrease in valuation could be avoided would be if when the sale of the business is concluded, it is agreed that Cathy actually comes with the business (just like the presses and copiers being purchased) and she will work for free!

Remember, what you and your partner or spouse take out of the business should never be confused with owner's compensation - these are two different calculations.

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Owner Mistakenly Forgets Wife's Salary (Part 1)

Just finished another valuation for a company. The company is doing about $550,000 and after my initial review of financials, equipment lists, and answers to various questions my initial value was approximately $355,000.

All things considered, that turned out to be a pretty decent or healthy valuation! Apparently the buyer was prepared to pay that amount and the seller's own numbers came pretty close.

Well, everything was ready to literally save and send when I received a casual note from the owner. Almost hidden among his commentary was a brief mention of Paula, his wife, and how valuable she was to the business, etc., etc.

Guess what? This was the first time her name or her involvement in the business had been mentioned! Now this is what it did to the original valuation...

See Next Blog for Part 2 of this Story

A Question of Ethics

Here's a situation to ponder.

You own/lease a high volume color copier which you've operated for about five months. You start examining the monthly invoices, and while the monthly minimum charge matches what you agreed to pay, the charge for "overs" seems consistently lower than it should be, but since it is low as opposed to high you dismiss your concern.

As each month goes by, however, you notice the "overs" charge continues to be lower than you expect. At one point, you dismiss the discrepancy as having to do where and how "overs" are being charged, and then naively assuming your high volume months will soon be accounted for in subsequent months - i.e. a lag in billing.

Finally, after five months, you examine the math on one of the invoices and you discover quite by accident that instead of being billed $0.045 per copy, someone has used new math and entered in 0.0045 and is using that figure for calculating the cost of "overs."

Assuming it was an error that occurred just in the accounting department when setting up our account, we reached for the original contract, and lo and behold, the contract repeated the same mistake.... instead of $0.045 for color copies the contract reads $0.0045 and $0.0085 for B&W copies. Quite a mistake for a formal contract, wouldn't you say!

Well, we decide to call the company, but because of the seriousness of the mistake we ask to speak to the owner. Our first shock occurs when they tell us they can't tell us the name of the owner, but they will take a message.

As I told my wife, had we asked for the name or phone number of a sales rep we would have had an answer in seconds. What kind of company adopts a policy that stipulates it will not reveal the name of the owner?

Ok, we say we just want to leave a message and we ask that the "owner" (whoever it might be) please give us a call on an urgent matter. We also tell the secretary taking the message that we are not calling with a complaint, but it is confidential and important nonetheless.

Well, so far 24 hours have transpired and still no return call from the owner.

Part of me is hoping that he never calls, because that will become the subject of a great column for Quick Printing magazine. I think I will title it, "The Arrogance of Ownership."

Anyway, back to the question at hand - What would you do in this situation? How would you handle it? Would you be willing to correct the contract and pay the proper amount for all back copies? What about future copies, would you hold them (or attempt to hold them) to the current contract? Would you call the owner again and leave another message?

I will be curious as to your take on this issue.

P.S. You can subscribe to this blog and read new entries as they are posted by using the button near the upper right hand corner of this blog, just beneath the "archives."

Thumbs Down for Symbook PDF Animator

Symbook is a subscription based program that allows you to convert a multi-page document into an animated PDF that can be placed on web pages, etc. You know the type, you load a web page for a catalog and you can click or drag a page and the next page opens, and then the next, etc., etc.

Well I used Symbook, but only discovered long after the fact that despite the fact that we specified in our set-up that no printing was to be allowed, it turns out that viewers could both download and print the pages that were originally meant for viewing only!

When brought to the attention of Symbook, they apologized with a, "Yes, we know about that problem and we're working to fix it." That's not a minor problem, that is a huge screw-up on the part of Symbook.

Subscribers beware!

Your Payroll Ratios - Worth a Second Look

Twenty-six years ago the quick printing industry was much different than it is today. Average sales (according to an Operating Ratio Study published at the time) were $336,000. High-speed B&W copiers were in their infancy, and digital copiers (B&W or color) didn't even exist. We relied on photo-direct platemakers and small presses for more than 75% of our total income.

Three interesting ratios also appeared in that early study as well. Averge "Cost of Goods" was 29.7%, "Overhead Expenses" were 28.1% and "Payroll" was 24.3%. Total costs of operation thus totaled 82.1%, producing an average owner's compensation 17.9% of sales.

Move ahead 26 years and we find some interesting changes in our landscape. Despite the dramatic changes brought about as a result of computerization and digital copying technology, two key ratios have remained virtually unchanged. Today, average "cost of goods" remains virtually unchanged at 29%; "Overhead Expenses" have actually dropped slightly and now average 27% of sales.

Unfortunately, "owner's compensation," which was 17.9% in 1983 now averages 12.6% -industry, a drop of 5.3%! This represents a decline in profitability of almost 30%, and surely deserves the attention of every owner.

How did that happen? How did those profits drop by 5.3%? Well, if you haven't guessed by now, the entire drop in owner's compensation can be traced to a dramatic increase in average "payroll costs."

Today, "payroll" now averages a whopping 31.4% of sales and that is more than enough to account for the drop in profitability in our industry. Had it not been for slight improvements in "cost of goods" and "overhead expenses" the drop in profitability would have been worse.

What is even more amazing, is that payroll costs have increased dramatically despite the vast increases in productivity promised (and even achieved) via automated presses, CTP, digital copiers, computerized estimating systems and modern DTP systems.

The only good news to be found in all of the above is that not all companies have marched to the same drumbeat.

At least 25% of those companies survey in 2008 reported an average owner's compensation of 23%! How did they achieve or exceed the profits reported in 1983? By closely monitoring and controlling their "payroll" costs! These companies report an average "payroll" costs of 26.9%, proving that payroll costs can be controlled.

One critical piece of advice. Your monthly financial statements need to separate total "payroll" costs under a distinct and separate heading. Beneath this heading should be gathered all expenses directly and indirectly related to payroll. Don't allow your accountant or bookkeeper to place payroll items such as workman's comp., Federal and State unemployment benefits, health insurance and a myriad of other payroll expenses unde "overhead." Despite the fact that this is a popular place to locate these expenses, they don't belong there! Enough said for now.

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This Business Has Great Potential

Here's some food for thought...

How many times have you said to yourself or heard someone else remark, "This business has so much potential. If the right person came along they could probably double sales in the next two years."

Sometimes the above comments are amended by, "With the infusion of a relatively small amount of additional capital along with some proactive outside sales efforts (etc., etc.) this business could really take off, boosting both profits and sales."

By themselves, these statements sounds fairly innocuous but the problem is most of the individuals making those comments are owners wishing to sell, or a broker with a business for sale! Many businesses, given a change in circumstances and some additional financing, can in fact experience a jump in sales, but those jumps in sales, along with the credit for those sales, belongs to the buyer and not the seller.

Seller's or brokers who bump up the price of the business based on the premise that "the business has so much potential" are simply taking credit where none is due!

Your business is worth only what it is producing today in terms of excess earnings, plus a modest value placed on the equipment package. The fact that it isn't producing sales or profits at a higher rate is simply the reality of the current situation, and it is the current situation that must be used in the valuation process.

P.S. You can subscribe to this blog and read new entries as they are posted by subscribing using the button near the upper right hand corner of this blog, just beneath the "archives."

Cash Under the Table vs. Business Value

A word of caution for those owners who fail to report "significant" amounts of cash and use these funds for personal uses. This may turn out to be, "penny wise and pound foolish."

While this industry relies to a large extent of charge sales and established accounts, there are occasions where business owners receive cash payments and yet fail to report these cash payments and just pocket the money instead.

Forgetting for a moment that such activities are considered "Tax Evasion" by the IRS and may subject you to criminal prosecution, there is also another negative to note as well - Withdrawing cash from the business impact the value of your business down the road by a factor of three ot five times what you have taken out in unreported cash.

As an example, you fail to report $10,000 in cash and you use it to meet personal expenses. You think to yourself, I would have had to withdraw at least $13-14,000 in payroll to have net that $10,000 so I have saved myself $3-4,000!

Once again, forgetting for the moment that the above would be illegal, there is another unintended consequence of the above practice. Had the $10,000 remained in the business it would have contributed to profits (and ultimately "excess earnings" calculations) which in turn would have been subject to a multiplier ranging between three to five, or an increase in company valuation of $30,000 to $50,000!

Ok, so you don't take cash out of the business, but you use the business to pay for certain personal expenses such as lawn care or electrical work done at your home. Such actions are more likely to be classified as "tax avoidance" as opposed to "tax evasion" and thus the penalities are not quite as severe.

Nonetheless, when it comes time to sell your business and you must calculate your total owner's compensation (including perks), you will be tempted to list many of these types of payments as perks. First, be prepared to document each of these payments to a prospective buyer. You claim an additional $2,400 for pest control as a personal benefit since the payment is made by the company. Be prepared to show the potential buyer invoices that will document these payments.

Just remember, however, that every unreported dollar, while saving you cash in the short-run, may be costing you you $3-4 in valuing the business for a future sale!

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Comedian Jon Stewart's Death

Now mind you, I am a kind and gentle person behind my rough persona, but I must admit that I find myself at times just wishing this comedian would just sort of disappear, or go "poof" in the middle of the night.

I just get tired of doing searches on myself on Google or Yahoo and not being able to find myself because of some comedian. There's also a second rate musician by the same name, but of course the big cheese I have to compete with is Jon Stewart. Mind you, if you put "printer" or "consultant" in your search string I get pretty high rankings with most search engines, but do a search on my name alone with no other key words attached and all you get is stuff about this hack comedian!

Heck, Google and Yahoo don't even seem to mind that the comedian's name is spelled "Jon" not "John" but then again they've probably figured most Americans can't spell properly and they simply don't care about how he spells his name, just so long as they can get a laugh.

Well, by November this problem should be resolved!

I recently placed an email order with Vodoo Dolls Now, Inc. in Haiti. They actually sell special gift kits containing a look-alike Vodoo doll of the person you want to exterminate, six different injury and death spells you can cast, plus a box of 100 various length pins and needles you can use to stick into the doll. I'm not even going to use the little needles... I am starting immediately with the six and seven inch hair pins. The company doesn't offer any specific guarantees but they promise that most of the spells do take effect within six weeks. They caution about not using more than two pins a day, but my plans are to use a handful the very first day this box arrives here at the office.

So there you have it, the unvarnished truth and all. I figure by the early part of November I won't have to worry about this guy anymore. Anyway, here's to Jay Leno!

FedEx Kinko's Employees Sound Off!

If you want to take a brief break from your daily grind and have a good laugh while you are at it, you have to visit a site serving current Kinko's employees - a place where they can post about their daily frustrations, their hatred of FedEx, their hatred of customers and even their hatred of FedEx managers. It is quite an active site and has been around for years. Have fun. Here's the site's address: http://community.livejournal.com/kinkoids_unite/

Here's just one of literally hundreds of posts found on this site:

And was anyone else told that there would be NO merit increases at all this year?

Who coulda seen this coming?

Oh, yeah. we did.

Five months ago.

So... if "merit" isn't to be rewarded, and the overall profitability of a center or a cluster or a district isn't relevant, what's our incentive to be meritorious and profitable exactly?

Well, we should be glad to have jobs. Especially in this economy.

Jobs where we can count on reduced benefits, wages that effectively drop as the cost of living inevitably rises and hours are cut, more demanding and stressful working conditions, more pointless procedures and protocols and forms and sign-offs and verifications and logs and reports and...


Sorry, I had to stop and take a breath. I was turning Purple from saying so much without inhaling.

Small Firms Impacted More by Bad Decisions

Poor management decisions impact firms of all sizes, but the smaller the company the greater the impact. A couple of examples come to mind.

Creating jobs for family members, both immediate as well as extended members, can create havoc with profitability, especially in smaller firms. It is one thing to have an unproductive uncle, neice or nephew working in a$1.4 million dollar firm when there are nine or ten other employees to cover up for low productivity, but change the numbers down to a $400,000 firm where there should only be three or four employees to begin with and discover that one of those four (the son, the daughter, neice, etc.) is simply lacking in basic skills you have the ingredients for a disaster on your hands.

Same thing with partnerships. Small businesses are simply not structured to support two equal owners. It is almost impossible for small companies to compensate two owners at the levels they perceive they are entitled to, without once again draining precious dollars from the bottom line.

Small businesses simply can't justify two highly paid owners wearing their management hats trying to supervise the two or three remaining employees. Even in cases where both "partners" work and work "really hard," the work they perform rarely justifies the salaries they expect.

One of the many problems with compensating partners and other family members is that they expect (far more than traditional employees)to be compensated at levels they need to support their families, rather than at levels warranted by the work they perform.

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New SPE Analysis is Revealing

Recently, we conducted a special analysis of financial data taken from the 2008 Operating Ratio Study and the results were quite revealing. First, we extracted all companies with sales between $700,000 and $3 million. Next, we sorted the data (representing approximately 209 companies)and then sorted the companies by their reported SPE. We then broke our sample data into four evenly divided quartiles and then calculated the corresponding owner's compensation for each of these quartiles.

Below is what we found:



The first line in each breakout represents averages while the second line shows medians. Note that the companies in the top quartile in terms of Sales per Employee(SPE) are achieving an SPE almost 70% greater than those in the bottom quartile. Even more relevant, however, is that the average owner's compensation of those at the top is almost twice that of those in the bottom quartile - 16% vs. 8.6%!

Causes of low SPEs are numerous, but essentially it comes down to the ability of one company to produce $1.5 million in sales with approximately 9 employees while a company with similar sales (and similar breakout of sales) could find itself employing 15-16 employees in order to produce the same $$$ volume and mix of work!

Some questions you might want to ask yourself are as follows:

Is your current equipment mix the best that it can be in terms of overall productivity, or have you been rationalizing that the "older stuff is still good and we still produce a lot of work with it."

Do you really need a full-time book-keeper, or that second DTP specialist?

Are you creating jobs for family or relatives that otherwise would not exist?

Are you making any attempt to track sales produced in key departments such as DTP or your pressroom? Without some formal tracking method for measuring output in these departments, the appearance of folks just looking busy or even harried can be very deceptive.

Of course, a company can have a very productive team of employees in place, but if the company fails to properly charge for this productivity it will definitely show up in lower SPEs as well as lower owner comp numbers!

Call me if you have any questions.

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Reaching 300lb Bench Press

As many friends may know, one of my favorite hobbies has always been weightlifting. One of my goals was reached recently, and that was bench pressing 300lbs. It didn't come easy and I was 4-5 months behind the calendar date I had established for myself, but as they say, "Better late than never."

I must say, that even with adrenalin pumping and getting "psyc'd out," 300lbs. is damn heavy. I am sure much of it is psychological but when you're looking at that bar and you lift it off, the thought that runs through your mind (at least it did in mine) was, "damn, I don't care how much I convinced myself this should be light, it is heavy as hell!"

Anyway, I am finished with that. I will never attempt 300lbs for the fear that I might hit a weak day and not be able to do it. In a couple of weeks we will go for 305 or something close. For those interested (all five or six ) I will report back in on my progress.