Friday, July 20, 2012

No Computerized Estimating - Shocking!

I'm working on one of three valuations this week, and one of them has really shocked me.

This company is thinking of selling and during my discussions with the owner we started talking about pricing. Just in passing, I asked him what estimating system he was using. I expected him to tell me Printer's Plan, PrintPoint Leader (formerly PrintLeader), PrintSmith or one of the other less known programs.

Instead, much to my shock and amazement, he told me he does all the estimating by hand based upon rates and charges that are in his head. "Surely, you have your basic estimating rates written down," I asked, and he said, "Nope!"

"How the heck do you expect to sell this business, especially to a newcomer when you don't have your pricing, estimating and invoicing already automated. Do you realize how much more it is costing you and how much more money you could be putting in your pocket just by computerizing those function in your company?"

Gee, I was starting to sound like a salesman for one of these companies. This will be one of the few valuations where I will actually break precedent and use some negative numbers in the valuation sheet that I use to arrive at an "excess earnings" multiplier.

Every once in a while I will find someone using an outdated Franklin Pricing Catalog, but for the most part it seems like 95% of the companies I deal with have at least installed a computerized estimating system.

It has been a long time since I have encountered someone who is so out of touch with the industry that he has chosen to use pencil, paper and calculator to figure his prices. At one point, he even mentioned that he hasn't raised his prices on some items in 3-4 years because it was too much of a hassle.

Instead, he refers to little post-it notes, charts and tables he prepared years ago, as well as a lot of data that is indeed just stored in his head. His markup rates for outside services and paper are all over the place, and it often depends upon whether it is Wednesday or Friday as to what type of markup he is going to apply to a $1,500 job that he just brokered out!

Just amazing. His failure to computerize will impact the value of his business by no less than $60-80,000, an amount that would buy ten of any of the estimating systems mentioned above.

One side benefit that everyone forgets about is the vast improvement in filing methods when you use a computerized estimating system. You can convert from a problem plagued alphabetical filing system to a very efficient numerical system in a matter of a few short weeks, and when you do you will look back on the decision noting, like so many others do, that your only mistake was in not converting over years ago.

That's my rant for the day.

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