ASI - Trade Association Hypocrisy

ASI - What a bunch of hypocrites!

Yesterday, Timothy Andrews, president of the Advertising Specialty Institute (ASI), issued a news release attacking President Obama's recently issued mandate to cut 20% from federal agency spending on "plaques, clothing and other unnecessary promotional items."

I'll bet if you had interviewed the officers and members of this association just two weeks ago about the federal budget you would have heard almost a unanimous chorus suggesting or demanding that the government needs to reduce spending across the board.

So what happens when the President takes such a move? ASI issues a news release pleading for its members to take up arms and fight this move by the president.

The ASI news release said, "We are undertaking an aggressive PR campaign to immediately educate the media and others... why our industry's output and value shouldn't be called 'wasteful spending.'"

So let me get this straight, ASI and its members (I assume this to be true) want the federal government to reduce spending wherever possible, but they object (at least Mr. Andrews does) to the President's mandate urging a reduction in agency spending on pens, cups, plaques and other advertising specialties?

Actually, I don't know how anyone can seriously attack such a modest mandate and still maintain a straight face!

Mr. Andrews I fully support private industry choosing to buy pens, mugs and plaques from your industry. In fact my own company has purchased advertising specialties. However, please don't expect a lot of sympathy from taxpayers like myself when the government makes a move to reduce its purchase of advertising specialties and you urge your members to fight such a move!

The bottom line is that Mr. Andrews wants the government to continue spending money on advertising specialities because it will help "the industry bounce back." So you want taxpayers such as myself to help your members by encouraging the government to continue its spending practices?

I really don't know how Mr. Andrews can keep a straight face when he urges his members to contact members of congress and urge them to keep spending money on imprinted mugs, mouse pads, pens, plaques and lots of trophies.

Valuations - Polar Opposites

I have sitting before me on my desk valuation folders for two different printing firms. One is green and the other yellow. The colors themselves don't mean anything, but the contrast between what they each contain inside is simply shocking.

I finished both valuations late last week.

The Green Folder represents a company projected to do almost $700,000 in 2011. Two years ago their sales were $820,000 but the drop in sales doesn't concern me. It is typical in this industry. What does concern me is that this company's final valuation came in at less than $50,000! That doesn't mean they can't sell the business for more or that the customer list itself might have a higher value, but from a strict valuation standpoint, based upon actual financial performance, the business has little value.

How does that possibly happen? Well the owner will make less than $18,000 in total owner's compensation this year - that's less than all of the six remaining employees will earn this year. With that low a salary, this company doesn't even come close to the threshold we set for a fair market salary for an owner, thus it is producing no "excess earnings."

Without excess earnings, the company has virtually no value. It assets are old and total $89,000 but even that amount is penalized by the significant negative excess earnings. This company may sell for more than our estimated value, but not by much, and only because a new buyer may be willing to certain risks above and beyond what our formula suggests.

What about the Yellow Folder? The yellow folder represents a polar opposite of the prior company. This company did $1,218,902 in sales in 2010. The sales for this company have remained strikingly similar for the past four years, despite the recession. Interesting that this company employs a total of only seven employees (including the owner) which is only one employee more than our previous company - thus producing a Sales Per Employee of $174,000! Total owner's compensation for this company in 2010 was $280,000 which results in a 23% OC ratio.

Combined with a solid list of productive assets, the valuation on this company came in between - $910,000 and $1,122,000! The only problem is that it is almost too profitable! While in our sound judgment the business can easily fund its own purhcase, at that high a purchase price there are simpmly far fewer qualified buyers, especially buyers with printing experience.

One more thing about this company. Although the company is very valuable, I have told the owner that his facility, in terms of general appearance and cleanliness, comes across as sort of a "pig sty" and it needs a major clean-up or it could result in offers being $100,000 to $200,000 lower based on that "first impression."