5 Tips for Selling a Printing Business
Below are five tips that will help sellers be better prepared when it comes time to sell their business:
1. It's Profits Stupid - No one really cares who your customers are and how you produce your products, or the latest technology being used.... they want to know how much profits the business is generating during any 12-month period of time. The greater the profits, the higher the value of the business. If you can't show any real profits then all you've been doing is buying yourself a job these past few years.
2. Excess Earnings - Learn to distinguish between Excess Earnings and Owner's Compensation. Owner's Compensation is the total amount of salary, profits, perks, and health benefits paid by the business on behalf and to the benefit of the owner. Subtract from that an estimate for a fair market salary for an owner and you have "Excess Earnings." As for calculating a fair market salary, use our industry formula which is: $14,000 + 4% of Sales, the total of which is marked up by 18% to account for taxes.
3. Clean up your balance sheet - If the business owes you money then collect it now. Clean up your balance sheet and get rid of any notes due to stockholders, etc. A buyer might be expected to assume leases and long-term notes for certain assets, but they are not going to pay you $XX AND pay you back additionally for loans you have made to the company.
4. FMV of Equipment & Fixtures - At some point in the sales process, it is very likely you will be asked for a list of assets being purchased or included in the sale. This list should also include a FMV (fair market value) estimate of each major piece of equipment. The total of all the equipment and fixtures may or may not exceed what is shown on the books. You also may be asked to obtain an independent 3rd party appraisal to substantiate your claim. The bottom line, not what you think it is worth, but what would a diligent and knowledgeable shopper pay for a similar piece of equipment?
5. Forget EBITDA - We include and recognize at least two components of EBITDA as legitimate expenses - Depreciation and Interest. We expect to see a reasonable amount allowed for each of these two items. While not immediate "out of pocket" cash expenditures, over a longer period of time they clearly need to be allowed for. By including these as part of our forecast P&L, it actually ends up being a selling feature, since you can tell a potential buyer that your valuation method actually allows for future investment in equipment to keep the company modern and up-to-date. P.S. The multipliers we arrive at in our valuation process are higher than used by many appraisers to rely on EBITDA so don't be misled by thinking that our approach will automatically lead to a lower value.
1. It's Profits Stupid - No one really cares who your customers are and how you produce your products, or the latest technology being used.... they want to know how much profits the business is generating during any 12-month period of time. The greater the profits, the higher the value of the business. If you can't show any real profits then all you've been doing is buying yourself a job these past few years.
2. Excess Earnings - Learn to distinguish between Excess Earnings and Owner's Compensation. Owner's Compensation is the total amount of salary, profits, perks, and health benefits paid by the business on behalf and to the benefit of the owner. Subtract from that an estimate for a fair market salary for an owner and you have "Excess Earnings." As for calculating a fair market salary, use our industry formula which is: $14,000 + 4% of Sales, the total of which is marked up by 18% to account for taxes.
3. Clean up your balance sheet - If the business owes you money then collect it now. Clean up your balance sheet and get rid of any notes due to stockholders, etc. A buyer might be expected to assume leases and long-term notes for certain assets, but they are not going to pay you $XX AND pay you back additionally for loans you have made to the company.
4. FMV of Equipment & Fixtures - At some point in the sales process, it is very likely you will be asked for a list of assets being purchased or included in the sale. This list should also include a FMV (fair market value) estimate of each major piece of equipment. The total of all the equipment and fixtures may or may not exceed what is shown on the books. You also may be asked to obtain an independent 3rd party appraisal to substantiate your claim. The bottom line, not what you think it is worth, but what would a diligent and knowledgeable shopper pay for a similar piece of equipment?
5. Forget EBITDA - We include and recognize at least two components of EBITDA as legitimate expenses - Depreciation and Interest. We expect to see a reasonable amount allowed for each of these two items. While not immediate "out of pocket" cash expenditures, over a longer period of time they clearly need to be allowed for. By including these as part of our forecast P&L, it actually ends up being a selling feature, since you can tell a potential buyer that your valuation method actually allows for future investment in equipment to keep the company modern and up-to-date. P.S. The multipliers we arrive at in our valuation process are higher than used by many appraisers to rely on EBITDA so don't be misled by thinking that our approach will automatically lead to a lower value.
posted by The Quick Consultant at
4:05 PM
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