Printing Industry News and Notes

Wages In Printing Industry

2012-01-16T13:58:00.002-05:00

I was driving home the other day and it occurred to me that if I really wanted to sell a lot of Wage and Benefit Studies in the printing industry all I would have to do would be to market directly to employees rather than owners.. I am sure such an approach would not be looked upon favorably by many printers!

Fortunately, I am publishing the NAQP/NAPL 2012-2013 Wage and Benefits Study on behalf of NAQP/NAPL, and thus I will not be in a position to be selling the study directly.

Nonetheless, think about the value such a study might have to a general manager, or senior graphic artist or maybe a press operator. Let's say that individual plans on making this job their career and they plan on spending most of their life in the business, so long as they are rewarded favorably.

While for many employees it may not be all about "money," it is still an important consideration.

Just musing for right now... would spending $155-$179 be a wise move for an employee just to check out how competitive his hourly wage is compared to someone else with similar skills?

The answer is a "no brainer." Let's say a person is currently earning $14.50 an hour and after thoroughly analyzing the study determines that $16 per hour is more realistic, and he approaches the owner. An increase of $1.50 per hour amounts to $3,120... even a $1 increase amounts to $2,080!

One owner pleaded with me recently not to use the company's email address because he didn't want his employees to know anything about current wages! Wow, I thought... do they not read or talk to each other or know friends that work for other printers? Of course they do, so trying to keep info about wages a "dark" secret is a fruitless and impractical goal.

New Wage Study Will Shock Many

2012-01-13T13:51:00.000-05:00

SPECIAL NOTE: I am having problems with the table data provided below... I cannot get tabs to work, but I wanted to share with you the data, even though it is a bit difficult to read. The first column is from the 2007-08 Wage Study and the second column is the latest from the 2012 Wage Study (Preliminary.). I will try to get this corrected ASAP. I think it is fixed now.

The 2012-13 NAPL/NAQP Wage and Benefits Survey is well underway. I suspect that when the final study is published it will be a shock to many.

Excluding companies reporting sales greater than $10 million, the average sales of the first 150 participants is $1,658,299 and the median sales is $850,000.

This compares with the 2007-2008 average sales of $1,370,000 and median sales of $850,000.

Looking at just three positions we find that:

I suspect many owners are going to be wringing their hands together wondering what they are going to do and whether their employees will ever read about some of this data. Unfortunately, as for the latter question, the answer is "Yes." You can't keep determined employees from finding out what competitors are charging whether it's in the same town or across the country.

All I can tell you at this point is that the response rate has been great so far, and in fact the deadline has been moved up to Feb. 5 to submit your own data.

If you want to participate and get your own free copy go here:

www.surveyadvantage.com/2012NAPLWWages

Visiting Bank - A Funny Story

2012-01-05T16:49:00.005-05:00

This is probably admitting my advancing age, but I have a funny story to tell.

A couple of months ago I drove to the bank to make a deposit or cash a check, not sure I remember!

Anyway, nothing special about the visit and I only had to wait for one or two cars ahead of me. I finally pulled up to the teller window and before the teller could even come to the window or push the deposit drawer in my direction, I hit the "down" button on the driver's side.

Nothing happened immediately, and I hit it again, and again, two or three more times. Knowing the teller would soon be coming to the window, I tried to figure if the other windows were working and they were... the passenger side window worked fine, going up and down as I commanded it to do with my button. The windows in the back worked as well. Only my window was stuck.

I tried again with my button. Nothing happened. I checked the window lock button and clicked it a couple of times but nothing would happen. My window was still in the up position. I am really getting to panic. I know it's only a matter of a few seconds before the teller shows up and pushes the drawer out in my direction.

What the hell am I going to do? How am I going to communicate my predicament? My window is up and how, I wonder, am I going to use hand signals to let her know my window is suddenly not working. I am already thinking ahead and wondering whether I should pull forward or back up, because I am so close to the wall and the drawer that I couldn't open my door if I wanted to.... how the hell was I going to tell the teller about my plight. Could I back up and somehow edge the door open slightly, squeeze out and then walk up to the window?

Well, the teller comes to the window and I am starting to make stupid hand gestures to indicate that I can't get my window down. I put one or both hands up to the glass to start this sign language crap when one of my hands suddenly pierced the plane of the window. My hand shot right through what I thought was the pane of glass.

Oh my God, my window had been down the entire time. My button had worked. The window had been down the entire time. You can't imagine how stupid I felt thinking all the time that the window was up0 when ir was really all the way down!

I will say it was really clean and I will stick to that until my death. I hope this incident at least brought a smile to your face.

Client Reports Digital vs. Offset

2012-01-05T16:43:00.005-05:00

One of my long-time clients contacted me the other day with some info his manager had gathered. According to the memo, sales in 2011 had increased 8% over 2010 and was the best sales of record.

Most interesting of all was the manager's report that for the first time every sales from digital copying 31.8% had slightly exceeded those coming from offset printing at 31.0%.

Since we will be conducting a new Operating Ratio Survey within the next couple of months I will be extra curious to find out if this trend is representative of the industry. I suspect it is, but I can't be sure until I analyze the numbers.

If you have any similar data you would like to share I would like to hear from you, confidentially or not.
John Stewart

Threats by UPS Store owner

2012-01-05T16:18:00.004-05:00

Boy, some things really piss me off. I've been conducting studies in this industry for more than 25 years... in the past few years, I have come to rely almost solely on email blasts to get to the largest possible audience.

If someone asks to be removed we offer the typical "remove" options at the bottom of every email. If someone decides instead to respond with a "Please Remove" in the subject line I forward it on immediately to my list managers.

I rarely get a disgruntled recipient. I realize that not everyone who receives an email fits our survey parameters nor do we fit theirs. We do the best we can with the lists we have. A couple of days ago I sent out 40M notices as to how someone could get a FREE copy of the upcoming Wage & Benefits Study.... just complete a survey!

Today, I received the following from an owner/manager of a UPS Store #4085... his one line response to one of our emails was:

Do not contact us again. Any further SPAM will be reported to the FCC.

I responded almost immediately, trying to keep my famous temper in check. I advised him I would do the best I could, and also advised that the most automated and simplest process was to use the "Please Remove" feature at the bottom. I also added that I don't take very kindly to threats, no matter who they come from. I've had run-ins with the best... the FBI, FAA and even Homeland Security (TSA)... and I mean in person with agents, so threatening to contact the FCC with a complaint about SPAM is almost humorous - Especially so when these emails do not qualify as SPAM - all this does is bring my blood to a boil.

About five minutes after sending my response I get a CC copy from him containing some reference number to an FCC complaint form.

One minute after that I responded with the a "F*** Y**." If he thought he was going to intimidate me he was quite mistaken. I proceeded to write a letter to UPS World Headquarters in Atlanta describing this guy's attitude and the threat to turn me in for a simple email invitation! As I told UPS, "you've got to be kidding."

Anyway, I repeated the statement that I really didn't like being threatened by one of their store owners and I was holding them responsible for disciplining this owner and asking him to cease his "childish" behavior.

Of course, as I always do, I sent it out Priority Mail with a subject line on the mailing label, highlighted in yellow that said: "Threats and harassment by a UPS Store Manager/Owner."

Well, that should get someone's attention. What a jackass.

ASI - Trade Association Hypocrisy

2011-11-10T08:40:00.006-05:00

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

2011-11-07T09:28:00.003-05:00

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."

Four New Videos Posted

2011-10-24T15:36:00.005-04:00

Well, for those who are interested, I have just posted four videos on my website at http://www.quickconsultant.com/. These videos, part of a series I have produced under the "Checklist for Survival" banner, are not for owners with short attention spans, since they average 11-19 minute in length.

The subjects covered in these new videos include:

Sales Per Employee

Critical Financial Ratios

Your Chart of Accounts

And one titled simply, "Money"

Since they are FREE, I can't give you a discount , but I would appreciate any and all feedback, good or bad. Just be gentle on me. It is a lot easier speaking in front of a live audience than it is looking into the lens of a camera that never seems to nod, laugh, or raise its hand with a question!

Anyway, I hope you enjoy them.

Sitting in the Buyer's Chair

2011-10-19T10:37:00.002-04:00

Many of the business valuations that I prepare for owners come in much lower than what they were expecting.

I am always curious as to why so many of them think their business is worth so much more? Many appear to have pulled numbers out of the air. Others end-up mis-applying what otherwise are sound valuation formulas. Still others simply forget that all of the liabilities on the balance sheet need to be cleaned up or eliminated in order for the business to be sold "free and clear."

If you are expecting the buyer to assume all of those notes and other liabilities you are mistaken. Too many owners think selling their business at their price should be simple. They expect that someone else will take over all of their headaches and that in the end they will be able to walk away with a fistful of cash. That's just not going to happen.

Imagine sitting across the desk from a seller and trying to decide whether this purchase is a wise one or not. The buyer is ready to commit what $250,000, $400,000 or some other amount. In the simplest of terms, he expects that this investment should produce some type of return on his investment, just as he would if he invested in the equity market.

By the way, if the buyer is buying the business as an on-going entity, then the equipment you are selling has to be sold free and clear. Remember, you can't sell what you don't own.

If the buyer is going to takeover the functions of a working owner, he (or she) also expects that the business should be able to pay themselves a fair market salary for managing the business on a daily basis, as well as generate enough excess money to pay the seller each month.

Can you explain to a potential buyer how this can be done? Can you justify your asking price based upon the above scenarios?

P.S. I have only known of two businesses that have sold for more than one year's worth of gross sales. Most businesses end up selling for somewhere between 25-60% of gross sales. Some valuations are higher and many more tend to be at the lower end of the spectrum.

New Chart on Ratios 1983 vs. 2009

2011-10-18T14:53:00.011-04:00

The chart below is one of a number of informative charts and tables used in an upcoming video dealing with the industry's Chart of Accounts as well as a video dealing with key financial ratios.

In a sense, the chart is self-explanatory. What I want readers to note more than anything else is that, contrary to popular opinion, only one single major expense category has increased in the past 27 years in this industry!

New Chart of Accounts Video

2011-10-18T10:51:00.002-04:00

I am excited about my new, second video titled, "Chart of Accounts." I just viewed a rough cut and with only minor changes it is ready to post. I am hoping that it will be available before the end of this week.

If you haven't had a chance to view my first video on "Sales Per Employee" I encourage you to visit my website at: www.quickconsultant.com.

I have another video in the works that deals with "Key Financial Ratios," and a fourth video titled simply "Cash." This video takes a somewhat light-hearted, humorous approach at how a stack of $1,000 dollar bills is distributed to pay all the bills in a "profit leader" firm versus how these bills are paid by a "profit laggard" firm.

Regulations Are Not Job Killer Says Report

2011-10-17T15:26:00.002-04:00

My October 2011 Quick Consultant column challenged the notion that government regulations are the cause of many of our problems.

Now, a new CNNMoney report affirms that statement. The article disputes the claim made by many Republicans, especially those in the Tea Party, that government regulations are not the major reasons for the problems being faced by small business.

The claim that the Obama administration and a wave of new government regulations are strangling the economy are not true, according to the report. Citing both private and government sources, the article notes that "Only a small percentage of employers report regulation as a reason for laying off workers."

Of the 55,000+ new unemployment claims filed in the first eight months of this year, only 2,085 were attributed to government regulations, according to the Bureau of Labor Statistics.

Even the National Federation of Independent Business (NFIB) noted that less than 20% of small business owners cite government regulations as their most important problem.

"Poor sales, for example, were a much bigger worry," notes the CNN article.

"And a CNNMoney survey ofr economists conducted in the second quarter delivered similar results. Only a couple of the 16 economists questioned said government regulation was the biggest drag on the labor market."

According to the article, Economist Gary Burless, a labor economist at the Brookings Institution, said "there is little evidence to suggest that government regulations are killing jobs."

Owner's Business Under Water

2011-10-13T11:05:00.004-04:00

In too many situations, owner's still owe far more than they will receive from the sale of their business. This is not an unusual situation, yet it nonetheless shocks many potential sellers.

I recently analyzed a firm from the west coast with annual sales of about $550,000. Unfortunately, he was making only slightly more than what our formula specifies for a working owner. Thus, there wasn't much left over. What is left over, if any, is called excess earnings. These earnings are typically subjected to a multiplier between 3-5 and the result of that is then added to the total value of all net assets being transferred or sold.

The problem is, however, that you can't sell assets you don't own. You need to pay off all notes and loans to transfer the equipment free and clear.

In this specific situation, even giving the owner the benefit of the doubt in many areas, his business came in with a very modest valuation of $150,000. BUT wait! After the owner takes out all the cash in the business, collects the receivables AND pays off all the short and long-term obligations of the business there is a negative amount of -$(354,000) to be settled up on the balance sheet.

That means even if someone is willing to pay the seller $150-$175,000 for the business he is still going to be "under water" in the sense that he will owe more than he will receive from the sale. Meaning in many cases he will have to loan the company more personal funds as he has done in the past.

How did this ever happen? Well, there are lots of reasons but this owner over invested in equipment and never generated the sales he expected. He wanted his shop to be an all-digital operation and it is, just a very expensive one!

His current equipment could easily produce $1.5 million in sales, but at present and for the past few years it has been doing about 60% less than it should.

Ipad helps with shooting three more videos

2011-10-12T09:24:00.005-04:00

Well, it rained cats and dogs on Saturday, but that was Ok because I was planning on spending all Saturday morning shooting three new videos. Previously I went out and bought the light stands, the tripod, wireless mike set-up and the camera, but I ended up hiring a local videographer to do all the filming, editing, etc. It has been both fun and nerve-wracking at the same time. Trying to get it all in one take, keeping them short, and yet interesting through the use of key charts and graphs has been a challenge.

I have fallen in love with my ipad II and while I first got it because of a great flight planning software program (which has revolutionized the paperwork part of flying), I now find myself using it extensively for reading, checking my email and as a very useful tool in helping me make these videos.

I use the Ipad and a program called Notetaker. The program was developed by Dan Bricklin... if you are 50 years or older you should recognize that name because he developed the very first spreadsheet program called Visicalc. He is often referred to as the father of personal computing because he actually came up with a spreadsheet program that could be used on personal computers to do real work, rather than just play games.

We then connect the Ipad to a video capture card and capture all of the penstrokes and drawing that I use while demonstrating the various slides. It has worked out great.

Anyway, I should have these three new videos uploaded within the next 7-10 day. The subjects cover:

"Chart of Accounts"

"Critical Financial Ratios,"

and one I simply call the "Money Video."

Lots of editing required to put these videos into final form but I hope they help those who choose to view them.

New Video on SPE

2011-09-29T09:21:00.004-04:00

Good news, at least for me! I just finished the first of what I hope to be a series of short videos on specific topics of interest in the quick printing industry.

The first video is a bit longer than I had planned, but it deals with Sales Per Employee - what it is and how to improve it. Right now, it is available on my website at: www.quickconsultant.com.

I haven't figured out a way for it to just show up here. Sorry! Feedback is always welcome. I intend to shorten the intro part, or possibly eliminate it completely on future videos. Let me know what you think. Thanks.

Shockingly Low SPE

2011-09-08T11:03:00.003-04:00

I'm currently working on a valuation for a company with 2010 sales of $600,000 and operating losses of almost $80,000. The company's payroll is running 51% and that does not include any wages or benefits paid to the owner.

Of course the company has been losing so much money since he bought it in 2006 that he not only has been unable to withdraw a salary, but he has been forced to plug almost $900,000 of his own funds just to keep the business afloat!

This is the classic example of ingorance is bliss. Had this owner made any attempt to seek sources for key industry ratios he would have discovered that most of his, especially his payroll percent, was totally out of whack and sooner rather than later would destroy him.

To be candid, I am surprised he has lasted this long, but he apparently has been successful enough in the past that he feels that if he just keeps loaning the business money it will somehow turn around!

NOT A CHANCE - It is statistically impossible to have payroll costs anywhere near 50% and still produce a profit, no matter how low your COG and Overhead Expenses might be.
Worse, however, is that I didn't even need to see the financials... all I needed to hear was that their sales were $580,000 and he was employing an equivalent of 8.25 FT employees - that works out to a shocking, almost "off the chart" $70,300!

By the way, if you loan your company money you better find a way to pay it back to yourself because no sane buyer is going to take that type of liability when you go to sell your business.

Payroll vs. Owner's Compensation

2011-08-20T13:09:00.008-04:00

Payroll Costs Vs. Owner's Compensation

I've talked about the correlation between payroll costs and owner's compensation many times in the past. Payroll costs play a greater role in determining bottom line profitability than any other major expense category. If you're having trouble in your business the chances are very good that many of those problems can be traced to payroll costs that have gotten out of hand.

Believe it or not, key expense categories such as cost of goods or general overhead expenses have remained, as a percent of sales, almost the same as they were 30 years ago in this industry. While COG and Overhead Expenses have remained the same, owners have allowed payroll expenses to continue to increase. I've provided the chart below to illustrate my point.

Note the difference in total payroll costs for those companies in the bottom 25% of the industry (0-25%) against those in the top 2quartile (76-100%).

By the way, contrary to popular opinion, companies with the lowest payroll costs typically pay the highest wages, they just employ far fewer people to do the work and the people they do employ are far more productive due to their skill levels and the equipment they are asked to operate.

Gov. Perry Believes in Noah's Ark

2011-08-18T10:27:00.004-04:00

BEDFORD, N.H. (AP) — GOP presidential candidate Rick Perry told New Hampshire voters Wednesday that he does not believe in manmade global warming, calling it a scientific theory that has not been proven.

"I think we're seeing almost weekly, or even daily, scientists that are coming forward and questioning the original idea that manmade global warming is what is causing the climate to change," the Texas governor said on the first stop of a two-day trip to the first-in-the-nation primary state.

According to insiders attending the meeting, Gov. Perry also went on to staunchly support the Biblical account of Noah and his Ark, as well as his believe that a whale did indeed swallow and later spit out Jonah! He said that while their is ample scientific proof of the latter, scientists are coming up far short in proving that "Global Warming" really exists.

One New Hampshire resident, after attending the early morning breakfast meeting, noted that aftger hearing Gov. Perry speak, it became quite evident why so many who surround the governor wear tall leather boots when in his presence. "You have to wade through a lot more than tall grass when you're around this guy."

Gov. Perry, Rep. Bachmann, etc. Have It All Wrong!

2011-08-17T12:56:00.005-04:00

Conservative Republicans, especially members of the Tea Party, all seem to be parroting the same line about the economy, and that is that small business owners are staying on the sidelines and aren't hiring because of all the government regulations and the impact of what they like to refer to as "Obamacare."

Ok, let me tell you something - I think these folks are full of crap, don't know what they are talking about and most of them haven't the faintest idea about how to run and prosper in a small business. When they speak, they are catering to the lowest common denominator of the electorate and unfortunately they have found a large number of listeners.

I have spent more than 30 years conducting research, publishing financial studies and providing individualized consulting services for small businesses - specifically printing firms ranging in size from $400,000 to more than $5 million in annual sales.

I have published more than 30 statistical studies in this industry dealing with profitability, pricing, wages & benefits, etc., etc. You name it, and I've probably published it!

I know the big players and the little guys in this industry and I know them by name. I know the firms that fall in the top quartile in terms of profitability and those at the bottom.

And you know what? I have never met nor confronted a print shop owner who was holding off making a major decisions because of "Obamacare." I also have never heard a print shop owner blame government regulations for the reasons he is having trouble surviving.

I don't know of a single owner who could look me straight in the face and blame either Obamacare or government regulations as a major cause for the problems they are currently facing! And yet, to hear politicians like Perry and Bachmann talk, these are the very reasons for our current economic crisis! What a bunch of crap!

I know firms that continue to grow and prosper in this current economy, and they don't give a rat's ass about future healthcare regulations and what the govenment might do next month or six months from now. Why? Because they know in the scheme of things they can't control the outcome so they don't let it interfere with what they can do and that is manage their businesses the best they can. They leave all the other stuff up to the politicians.

If your experiences are truly different that what I have noted please contact me. I would love to hear your story.

Anonymous Posts (arrrgh!)

2011-08-02T12:46:00.002-04:00

In more than three years of publishing a blog, the comment I received to my post regarding Rep. Posey was the very first anonymous post I have ever received. To be blunt, I have little if any respect for anyone who will not stand behind their comments with a signature. That's just plain gutless.

As to the specifics of the comment, while the listener may have heard me speak at one or more seminars or conferences, he has have never, never heard me suggest that the way to higher profits was by avoiding paying expenses you have already incurred.

If you want to change your buying habits in the future then go ahead and do so, but don't decide to suddenly not pay for the copier you leased two years ago or the paper you ordered last month. The speaker clearly did not understand what raising the debt ceiling was all about.... it had nothing to do with future spending but rather with paying past and current obligations.

While the author's business might be failingor in trouble I must tell him that others are doing quite well. Not everyone is quite as ready as the author of the comment to place all the blame for all the country's problems on Obama's shoulders, there's lots of that to go around.

It just infuriates me that people like this author don't have the guts to identify themselves and choose instead to hide behind "anonymous." Please note that I allowed that post to remain.

Congressman Posey - Where Are You?

2011-07-26T15:50:00.002-04:00

Well, it appears my local Congressman must be attending a Tea Party picnic. I can't get in touch with him and tell him how outraged I am that he and so many of his fellow Republicans seem so unwilling to compromise. Refusing to vote to raise the debt ceiling without insisting on the adoption of a Balanced Budget Amendment is simply irresponsible in my opinion - and thank God I am still entitled to that.

At the urging of President Obama, I sat down today to write Congressman Posey an email and was surprised to find that his Congressional website (apparently along with many, many others) has been shut down due to a massive overload of emails from constituents.

Well, it appears that while members of Congress may not be listening to the public, the public is indeed listening to the president and they attempted to have their voices heard today in Washington.

I guess we will all tune in for the next exciting episode of this soap opera.

Computer Nerd Storms Out of Restaurant

2011-07-26T15:34:00.003-04:00

My latest adventure with my cell phone jammer is the best so far.

Mary and I flew to Tampa last week and after landing decided to go to the XYX Pizza Grill for a nice salad.

We were sitting at the counter of this upscale restaurant and after a few minutes we were joined at the counter by the classic computer nerd. This guy comes in and sits at the counter and begins to show the waiter a coupon he has saved on his Ipad. He is proud of the fact that he has captured the coupon and begins to show it to anyone who will stop and talk to him. Most don't. The waiter says he has never seen it before and calls over the manager.

In the meantime, I reach into my pocket and bring out the jammer and put it on the counter and turn it on.... Now, I happen to notice this guy not only has an Ipad, but I also notice he has his Iphone is sitting on the counter over to his left. Then I suddenly notice that sitting directly beneath his forearms is one of those ultra thin Apple Mac portable.... three f&%&$ devices! No wonder this guy doesn't have a date! There would be no room for someone to join him.

In the meantime, he orders a beer as well as dinner but now he appears to be having all kinds of problems trying to refresh his memory or update the screens, not just on his ipad, but his iphone and Mac computer.

He is now terribly frustrated, even more so since he has no wifi signal whatsoever and the signal bars have dropped to zero.... he is really getting upset and agitated and asks the waiter if they are have trouble with their wifi, and the waiter says no not that he knows about, but maybe it was the hurricane out near Mexico that knocked some towers down, etc., etc.

I have now realized not only could I write a book about cell phone jamming, but also the excuses given by wait staff personnel when they attempt to explain the sudden loss of signals.

This guy goes outside restaurant into the mall and he gets a signal, but apparently loses it again as soon as he approaches the counter where he was sitting. He then announces that he can't eat here if he can't get wifi (can you believe that???) so he angrily asks the waiter for his check and to cancel his order for dinner.....

Oh damn, Mary and I have to be careful who we share our sheer joy and excitement about my new toy. In hindsight, I now wish I had gotten the slightly more powerful unit which I now understand I could have purchased for $40 less than I paid for this little device. Although mine works great within 10-12 feet, it is not effective beyond that.... it's still fun mind you, but I would love to be able to knock out entire city blocks!!!

Cell Phone Jamming A Blast!

2011-07-19T14:50:00.006-04:00

A couple of months ago I wrote a column in Quick Printing magazine (http://bit.ly/pFMrxt) basically taking to task the poor manners and boorish behavior of folks who use cell phones in restaurants. I find it especially offensive when folks seem to take some delight in sharing their private conversations with others by talking a bit louder than necessary. You know the type!

Well, I am getting the last laugh these days. I purchased a cell-phone jammer. The bad news is it cost me about $159. The good news.... no make that the outstanding news, is that I haven't had this much fun since I got my first chemistry set set more than 55 years ago and started impressing folks with all types of chemistry "magic."

Supposedly, cell-phone jammers are illegal to use in the U.S. except in rare occasions and I am sure than my situations do not qualify under these "special exemptions." Nonetheless, I figure the FTC, FCC and DOJ have better things to do with their limited resources than to come after me and impose their $10,000 fines for blocking cell phone signals.

Let me make it clear for these alphabet soup agencies and departments.... I've blocked cell phone signals, and will continue to do so because it is so much damn fun!

It is almost too difficult to convey how much fun it can me. Now mind you, I am a selective cell phone jammer. I am not going to block cell phone calls casually. If a woman is going into contractions and her husband has to use his cell phone to dial 911 I won't activate my little device.

On the other hand, if this husband is sitting next to me at a bar or restaurant and begins to carry on a lengthy and loud conversation with his sister-in-law about the latest measurements of his wife's cervix and when they might be going to the hospital I am going to call a halt to this disgusting and obnoxious phone call ASAP!

I just flick the switch and on comes the green light. Interestingly enough, and beyond my comprehension, is that the device seems to warm up as to its signal strength. It is more than just an "on" or "off" situation.

Once turned on, I can check my own cell phone and slowly see the reception or strength bars suddenly start to drop off... one, then two, then three, and suddenly no bars whatsoever.... followed quickly with a message on my cell phone "searching."

The same thing happens with the signal indicator for Wi-Fi strength.... they start to drop off one at a time until once again nothing!!!

The other day Mary and stopped at our favorite bar on the beach. I had to test my jammer, and I didn't have to wait too long until an obnoxious guy with a big mouth started trying to impress the folks around him. While he was talking, he started to dial a number on his Iphone.

I told Mary, "Watch this," as I flicked the switch to the "on" position. The device, which looks almost identical to a small cell phone itself, sat next to my drink. I don't have to point the device in any specific direction, but I get a special sense of power when I do so I just sort of swiveled it around and pointed it his direction.

First thing I notice is he is giving a strange look at the face of of his Iphone. The next thing he does is hold it up closer to his ear and speaks into it.... nothing is happening, at least not at his end, and I start grinning.

He apparently has a short fuse, and now stands up at his bar seat and sort of starts shaking his cell phone as if it to punish it or as if it is going to reignite the signal.... it doesn't. I start thinking whether there is a "shaken cell phone" syndrome that I should report.

Finally, while still standing, he holds his Iphone up towards the ceiling at arms length (this guy is tall, probably 6-3) as if somehow trying to improve his signal strength. Of course, even if this worked, I don't know how he could carry on a conversation with the phone that far away from his ear.

I look down at my own phone just to check.... zero bars, zero Wi-Fi.... the only problem is trying to restrain my modest grin and trying to keep it from growing into a full-blown laugh!

The guy is beside himself... he finally stormed out of the bar and went out to the deck near the beach where he was finally able to regain a signal. Of course, that's where he should have gone to begin with rather than staying at the bar.

I can't wait to visit this expensive, high-end restaurant in Tampa where my story about obnoxious cell phone users had its origins.

I keep thinking of even funnier things to do..... let someone initiate a phone call, then jam it and cause him to lose a signal. Then turn it off and see his eyes light up as he regains the signal, but as soon as he gets the first 3-4 words out then turn the jammer back on.... done enough times, I think even a sane person would start considering thoughts of mayhem or suicide, which would be fine for me if that's his final decision.

I am slowly accumulating a entire chapter worth of little stories like this. Some folks probably think I am crazy or at least a bit insane but of course that's nothing new and I take it as a compliment.

You should hear about the woman who got a private call at another restaurant on Saturday.... Ok, I don't have time to tell that story, at least not now.

Judge Affirms Stewart's Valuation

2011-07-19T14:34:00.005-04:00

Well, I just heard from a client on whose behalf I appeared as an expert witness. The divorce trial was nasty and expensive for both sides. With five expert witnesses, three attorneys and a handful of real estate appraisers, accountants and other witnesses, I have not yet completed my estimate of the total costs involved.

Nonetheless, and after three weeks awaiting the judge's decisionn, the judge finally ruled:

"As to XXX printing, I found Mr. Stewart's testimony to be most compelling regarding the value of the business."

My valuation and subsequent testimony in court placed the value of the business at $575,250. The judge, after hearing two other witnesses who had valued the business at anywhere between $700,000 and $900,000, placed the value of the business at $600,000.

Average Print Shop Valuations

2011-06-28T11:37:00.005-04:00

A column that I have written for the August issue of Quick Printing magazine contains a discussion of recent print shop valuations I have conducted in the industry. I have prepared approximately 34 valuations in the past 18 months, the vast majority of which were done with the intention of listing the business for sale.

To date, only two of those firms have actually sold, clearly indicating how soft the market really is. An additional two firms have received "letters of intent" through either brokers or franchisors but it could be months before we find out what if anything has transpired.

Note the shocking range in valuations. This data speaks for itself. If you would like more information on valuing printing firms, you might consider visiting: http://www.printshopsforsale.net/.

Divorce Expert!

2011-06-28T11:16:00.003-04:00

This is simply a follow-up on my earlier posts about appearing as an expert witness in a recent divorce proceeding.

When you've been married to ONE woman for 44 years it is a stretch to call yourself a "divorce expert" but in a sense I am, or at least I play one on TV.

I recently returned from a divorce proceeding that lasted three grueling days and involved 15witnesses, including four "expert" witnesses. I was one of those "experts" and I was one of three testifying as to the value of one of the largest assets (the printing company) owned by the couple. This asset, like all others, had to be valued and ultimately divided between the husband and wife. based upon the findings of the judge called to hear the cae.

I estimated that the three "business valuation" expert witnesses alone were costing the two plaintiffs in the case almost $5,000 per day, and these experts were required to be on hand throughout the three days of testimony, just so they could refute, if necessary, something said by the other expert.

That's about $15,000 in direct, out-of-pocket expenses for the witnesses alone... that doesn't include, as in my case, travel and lodging expenses, and it certainly doesn't begin to cover the costs of the three lawyers involved in the case.... or the judge's fees, or the court reporter's fees, etc. To the best of my knowledge, every single witness, expert or not, was being paid by one side or the other to appear at the trial.

My God, the binders used by the lawyers containing depositions, expert reports, real estate valuations and a myriad of other legal documents measured a minimum of 6" thick... they were the largest 3-ring binders I have ever seen!

I estimated that this divorce proceeding will easily end up costing at least $125,000 between the two parties. The sad thing is that the difference in the valuations of the business prepared by the two opposing sides was less than $150,000!

So here we found ourselves in a situation where, as usual, the only ones who are really winning anything are the lawyers..... this couple will easily end up spending $125,000 when had they just agreed to split the difference in the two valuations they could have saved at least $50,000 in legal fees. I guess that is just to simply a solution.

Oh well, I could write pages and pages about this stuff, but suffice it to say, you can't start early enough in a marriage before you agree in a method for valuing your printing business. Agreeing on a method now, even if for no other reason than for estate planning purposes, could easily save you tens of thousands of dollars down the road.

Valuation Experts - Hogwash!

2011-06-20T10:31:00.002-04:00

I just spent three days last week as a witness in a murder trial.

No, actually it wasn't a murder trial but rather a divorce hearing but it had all the elements of murder trial - lots of lawyers, lots of Realtors, business appraisers, accountants and CPA's.

The trial involved 15 witnesses and centered on the disposition of personal and business property owned by the couple.

I was the expert witness called by one party to value the business. I looked at all the numbers, used the approach we suggest in Print Shop for Sale, and offered a specific recommended fair market valuation.

As I noted in my testimony, there is a big difference, sometimes huge, between an estimated "fair market value" and what I thought the business would or should sell for. This is indeed a buyer's market and buyers are looking for bargains and are not about to pay premium prices or even fair market prices when they have so many businesses to choose from.

In any event, one of the expert business appraisers on the other side was nicknamed by me the German Professor. He went on a on with his testimony, offering up valuation theories only he could explain, and finally proffered a valuation range which left everyone gasping! The range was so huge that it was meaningless.

Prompted by a question I provided to my client's attorney, the witness was asked, "Exactly how many printing businesses have you appraised or sold in the past 15 years?"

"One," that he could recall valuing, but he wasn't sure that it ever sold.

When asked the same question about one day later when I was on the stand my response was that I had valued 34 firms in the past 18 months. The bad news is that despite the fact that I believe my valuations were very realistic, I only know of two of those businesses that have actually sold, while another two have in hand "letters of intent."

Remember, most business appraisers are hoping to get the listing, and thus are quite likely to offer you an unrealistically high initial estimate just to get you to list your business with them.

Caution is in order!

Before the Divorce

2011-06-20T10:19:00.003-04:00

No one that I know plans in advance getting a divorce, and yet we all know that approximately 50% of all marriages end up in a divorce. The statistics are even worse for second marriages!

From my considerable experience in both consulting and conducting business valuations, about the worst time in your life will be when you and your spouse start talking about separating and getting a divorce.

The only worse thing will be when you realize that a judge may force you to sell your business or at the very least buy-out the interests of your spouse to avoid that sale.

Suddenly, you find yourself wishing that you and your spouse had settled on some type of approach or formula very early on in your marriage.... NOT of course, one spouse or partner thinks the business is worth $1.5 million while the other person (the likely buyer) thinks or hopes it is worth 1/3rd that amount!

Every couple, every partnership needs to agree far in advance as to what methods they will use to value their business, and they need to establish at least a base-line value as a starting point.

Based upon some recent experiences as an expert witness, I can't begin to tell you the tens of thousands of $$$ that you will save yourself as a result of following this advice.

Shocked at Sarah Palin's Stupidity

2011-06-08T11:37:00.004-04:00

I just have to get it off my chest. This is my blog and I guess I have the write to say what I want. While my intention is to stick with what I know best (printing), I just can't help but offer my two cents worth of opinion about Sarah Palin.

I am utterly shocked at her apparent lack of intelligence. Sarah Palin is simply too stupid to be president of this country. You certainly don't have to have a doctorate degree or be above average intelligence to be president (Reagan and Bush proved that), but you do have to have at least average intelligence and/or the ability to gather about you folks who know and advise you about things you don't know. Sarah Palin lacks both.

I honestly don't believe Sarah Palin could point to a map and find Iraq, Iran, Pakistan or Afghanistan, not at least without some coaching.... she might hit the right continent, but she would never, never find all four! If geography was her only failing I would overlook it, but she is so lacking in other areas as well... business knowledge and history come to mind. I couldn't imagine she and her husband Todd running the country. I am glad I have a plane and could leave quickly.

The shocking thing is that while even a majority of Republicans say they are opposed to Sarah Palin, there is at least a decent, probably 50-50, chance that she could get the nomination as a result of gathering enough votes in the early primary states.

Who votes in primaries? In the case of the Republican primaries, they tend to be dominated by the most ardent, and most conservative within the party, and the latter love the likes of Palin a Bachmann.

The mere thought of Sarah Palin giving a State of the Union Message and yelling out with her shrill voice "I told ya so," and her stupid cliches about "putting the country back on the right path," just sends shivers up my spine.

Franchise Owners Shocked

2011-06-08T11:21:00.002-04:00

I just completed a valuation for a couple in the northeast. They own and operate a franchise they purchased 10 years ago. There sales reached $940,000 in 2010 and seem to be holding steady for this year.

The problem? The couple has used up $118,000 in credit card debt to finance the day to day operations of the business. They are in over their head. The husband decided to turn the business over to his wife while he went out and got a "real job" to earn some real money.

The wife is frustrated and ready to throw in the towel and/or divorce her husband. She hates the business and the daily pressure of having to pay bills when there is no money in the bank. She hates it!

The valuation I completed for the business ended up concluding that the business truly had little value other than the fair market value of the assets to be sold. The owners had over-valued the assets to a tune of $100,000. After making that adjustment and attempting to calculate their owner's compensation, the business value is approximately $205,000....

UNFORTUNATELY, they will still have to settle up their balance sheet debt. After keeping the cash, collecting the accounts receivable, they will also be responsible for all the current notes and loans payable. The net result will be a -$64,000. That does not include a $23,000 liability listed on the balance sheet as a "note payable to stockholders."

To say the least, the owner's are in a state of shock and still don't know what they are going to do!

My job was to conduct a valuation of this company, not to provide consulting advice.

Had I been involved in a consulting relationship with this company 12-18 months ago I would have been jumping up and down and scaring the life out of the owners with the stuff I found on their P&Ls. Many of the corrective steps that needed to be taken were quite obvious, others were not so obvious.

I must admit that while I put most of the blame on the shoulders of the owners themselves, I think the franchisor has some responsibility for this situation as well.... where was the monitoring, where was the mentoring, where were the warnings that needed to be raised.

Didn't someone tell these folks that you can't broker out 42% of sales and still have the ordinary ratios of a typical printing firm? You can't broker that much, even if you are marking up costs by 100% or more.

You can't run a $900,000 company 10.5 employees (including the owner)... you will never survive with a sales per employee ratio that poor -- that's $85,714 and that number is off the end of my survival charts!

It's Been a long time....

2011-06-08T11:15:00.003-04:00

I apologize to readers for the fact that it has been so long since my last post.

There are many reasons for not posting more frequently, but not worth getting into. I am hoping to improve the frequency of posts henceforth.

Getting to the next level

2010-10-19T11:42:00.004-04:00

Here's an interesting test. Post a technical question involving InDesign or Photoshop on anyone of the three or four printers list servs in this industry and then sit back and see how many owners provide an answer!

What wrong with that? I can make a strong argument that in order for owners to take their companies to the next level (whether it be $750,000 or $1.2 million or whatever) they need to quit doing what they like to do and start doing what they need to do! Too many owners enjoy learning all about DTP software and consequently end up spending far too little time managing their businesses.

I can almost guarantee that the faster an owner is to post an answer the more likely he or she has not reached that next level.

Owners should not be working in the DTP department or filling-in in the pressroom. They need to be managing their business, analyzing their financial statements, looking at new profit centers, developing and implementing a solid marketing plan, setting goals regarding key ratios and doing whatever else only they can do!

Owners are spending too much time learning about the lastest tricks for ripping files and combining layers and too little time mastering the fundamentals of business management.

Conclusion - If you know more about InDesign or Photoshop than you do about the top ten financial ratios in this industry then shame on you!

Printowners List Surveys Owners

2010-10-19T09:26:00.004-04:00

Well, the good news is that approximately 210 individuals responded to a recent survey conducted on the Printowners List Serv. The bad news is that, lacking even the most basic of filtering data, it is difficult to gauge how reflective the responses were to the industry at large.

I guess I have a built in bias that give equal weight to the responses of the "Joe the Plumber" or "Joe Six-Pack types" as against the opinions of owners who operate high $$$ volume and high profit printing firms. I put a lot more weight on the opinions of the latter and very little on those held by the former.

Ideally, I would love to have compared the opinions expressed by the "profit leaders" in this industry and see how they compared to those at the other end of the spectrum. I think the results of the survey would have been quite different had this been done.

You could tell by the answers to most of the questions that the vast majority of respondents were/are clearly anti-big-government, anti-administration, anti-Obama type folks. A plurality favored the Tea Party over the alternatives. A majority see themselves as conservatives, and 92% disapprove of how Congress is doing its job. Approximately 74% say the nation is going in the wrong direction.

The responses to one question did surprise me - that a significant majority (71%) candidly admitted that they have not donated to any political candidates this election season! I would have expected almost the reverse, especially from a group as pro-active and conservative as this group was.

In conclusion, my experiences in surveying this indusgtry for more than 25 years, is that the government, both local, state and national rarely plays a significant role in the success or failure of most businesseds. Most problems or challenges facing businesses today are self-induced and not the fault of government meddling or interference. In fact, the more troubled the shops, the louder they want to blame others for their problems, when in fact outside influences and "big government" rarely has anything to do with the problems they are facing.

Increase Business Value Now

2010-10-19T09:08:00.002-04:00

Here is a small list that will almost instantly increase the value of your business:

Don't wait until it is time to sell to improve your SPE to industry-leader status.
Fine-tune your employee team now, don't wait until it is time to sell; get rid of the "bad apples" now (yes, before Christmas), and give an early reward to those employees you intend to keep for the long-term.
Make triple sure that your financials are well-organized, and can easily be compared to those appearing in the industry's Benchmarking Study. (Visit NAPL at: www.napl.org)
I've said it a dozen times, if there are questionable notes receivable or payable on your balance sheet take care of them now, otherwise you might as well forget collecting any notes receivable that your company may owe you as a result of previous loans to the company.
If you are within two years of selling, restrict new equipment purchases to the bare necessities. Concentrate on boosting net earnings, and decreasing depreciation and interest expenses.
Apply a fresh coat of paint, install new carpeting and make sure both the front and the back areas of your shop are clean and well organized. Nothing will turn off a potential buyer more than a shop that looks dirty and disorganized.

Harsh Reality Hits Print Shop Owners

2010-10-19T08:58:00.003-04:00

Too many owners are now finding that just as they are ready to sell and retire to greener pastures their business isn't worth nearly what they thought it would be. Yes, in some cases the recession has been the primary cause of the drop in value, but in other cases it was an overly optimistic valuation, and now the harsh reality has set in.

Sarah Needleman, a columnist for the Wall Street Journal, wrote an interesting column on Oct. 14, 2010 titled, Businesses Put Up for Sale Smack Into Harsh Reality. For the link go here: http://online.wsj.com/article/SB10001424052748703440004575548393965927782.html

Needleman says a combination of "tight credit, skittish buyers and business owners unwilling to sell at rock bottom prices - factors similarly affecting home sellers - has left the small business marketplace at a standstill."

Long before this current recession, Larry Hunt and myself warned in our book titled, "Print Shop for Sale," that owners who were really interested in selling need to be prepared to provide or at least offer some financing to potential buyers. In fact, we quote on franchise president who notes that an unwillingness to take back or offer financing is one of the biggest impediments to selling a printing firm.

Abbott Glucose Meters are Junk!

2010-10-15T11:56:00.003-04:00

Following a diagnosis of diabetes by my family physician, I was prescribed a FreeStyle Lite gluecose meter made by Abbott Diabetes Care, Inc. (which I assume is connected to Abbott Labs, Inc.).

In any event, I must comment that this meter is a piece of junk. I assume many other meters fall into this same category. There's a lot of political crap going on too.... when a meter is allowed a 20% +/- variation and gives widely different readings within 30 seconds of each then I say it isn't worth the cheap plastic from which it is made.

Companies like Abbott certainly are not held to any exacting standards whatsoever. I'f my statistical and financial ratio studies ever varied by +/-20% I would be laughed out of the industry. It is shocking that the FDA allows such variation to exist. In fact, if the testing strips measure between 83-125 using a known glucose standard it is considered ok!

Well, it's not ok in my book. That's what I call a crap product produced under lax standards and casual monitoring by the FDA. By the way, the American Diabetes Association seems to give its blessing to these loose standards as well.

2010-10-13T09:42:00.001-04:00

Business Valuations vs. Selling Price

Sometimes it’s a hard concept to explain, but there is a distinct difference between the value (valuation) of a business and its suggested selling price. How can that be?

Here's an example. Using our formula, it is not that unusual to arrive at a $500,000 value for a business, but in the same breath recommend that a "fair market" selling price for that business might be $425,000.

How does that happen? Because in almost all transactions involving the sale of a business, certain assets (equipment and inventory as an example) are sold, but other assets are retained by the seller.

A perfect example of that would be a business that has $20,000 in a savings account. You normally don't sell cash, so that would be retained by the seller.

Another example would be a situation where the seller wants to keep the company car that he has been driving and a fair market value for the car is $18,000. That $18,000 would be excluded in our estimated selling price, but that $18,000 is part of the overall value of the business.

Another situation is that an owner typically retains the rights to the AR as of a certain date, but also assumes responsibility for taking care of all AP. The list goes on, but I think you see what I mean.

Our formula calculates the value of all the assets (tangible and intangible) to be sold, but it also assumes that the owner will benefit or keep certain other assets of the business. And it is the value of these retained assets, plus what the seller receives from the sale, that truly constitutes the full value of the business in question.

If you have any further questions as to business valuations, we suggest that you visit our page on business valuations at:
www.quickconsultant.com
and/or
www.printshopsforsale.net.
The second site maintains and updated Q&A section that answers many questions on valuations that we have received since our book "Print Shop for Sale" was first published.

Healthcare Provisions Kicking in...

2010-09-22T15:17:00.002-04:00

Just thought I would post something I just got off of Yahoo News....

To be candid, I really can't find fault with any of the provisions of the new Healthcare Law that kick in this week...

Among benefits taking effect this week:

_Young adults can remain on their family's health plan until they turn 26.
_Free immunizations for kids.
_Free preventive care, like mammograms and cholesterol screenings.
_No more lifetime coverage limits, and annual limits start to phase out.
_Plans can't cancel coverage for people who get sick.
_No denial of coverage to kids with pre-existing health conditions.

5 Tips for Selling a Printing Business

2010-09-02T16:05:00.003-04:00

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.

No Sympathy for Some BP Spill Victims

2010-09-02T16:01:00.002-04:00

While I am all in favor of compensating those citizens of the gulf coast for lost wages, I have little or no sympathy for those who are now making claims for compensation but have no records to substantiate any of their claims. Or, if they do have records, they represent half of what they are claiming. These are folks who accepted pay or payments under the table and never declared the income or paid the taxes. I guess what goes around comes around. Whether it is a shrimp boat captain, a crew member of a local restauranteur, I just can't see compensating them when they themselves were cheating the system! Just my thoughts.

New Mailing Study Released

2010-08-20T10:59:00.003-04:00

The 2010-2011 Mailing Services Pricing Study has just been released. Approximately 345 companies participated in this year's survey and I am convinced the pricing data contained in the study is more reflective of the industry than ever before.

The new 116-page study not only offers pricing data for ALL FIRMS, but it also provides pricing based on two other categories - SMALL FIRMS (those doing less than $100,000 in mailing sales), and LARGE FIRMS (those doing $400,000 or more in mailing sales).

You can get more details by visiting my website at: www.quickconsultant.com.

Recent Performance - It is what it is!

2010-06-22T14:57:00.002-04:00

All too often I hear printers tell me that although their sales were pretty decent in 2007 and 2008, their sales fell dramatically in 2009. Following that statement, they then want to argue in favor of valuation approaches that places less emphasis on their 2009 performance in exchange for valuations that favor prior years.

Sorry, that doesn't sit too well with most buyers.

First, believe it or not, not all businesses saw their sales drop off in 2009. Some actually held their own and others actually increased sales. Now, if we are going to reward someone for their effort it ought to be the latter who in the face of significant odds actually succeeded in 2009 when so many others did not!

Second, I think the tune we would be hearing would be far different if sales had increased in 2009. In these cases, everyone would want us (me) to point at the 2009 performance and give full credit for these increases.

So, while it appears that almost everyone is in agreement that significant weight ought to be given to the most recent year's sales when those sales are up, we get some pretty divergent opinions when those "last year's" sales tank. "Oh, we need to look at previous years when sales were up, and sort of ignore last year's sales because they were down... heck, everyone was down, weren't they?"

Goodwill Not Another Asset

2010-05-04T15:17:00.003-04:00

Goodwill is not a different class of assets, but rather it is the result or end product of using tangible net assets to create value. In many respects, good will can only be recognized after a business has been value and sold, as opposed to it being part of the valuation process!

Q&A Explains Interest and Depreciation

2010-05-01T10:52:00.002-04:00

Why does our valuation approach not use EBITDA? Because it is only one of many valuation methods, and we think it is a better method for conducting an apples to apples comparison of large corporations than it is for actual valuations of relatively small printing firms - those under $10 million in sales.

Visit www.printshopsforsale.net and then go to our Q&A section where author Larry Hunt has provided our take on EBITDA, depreciation, interest and amortization as it applies to valuations.

Huge Notes to Stockholders

2010-05-01T10:43:00.002-04:00

When was the last time you looked at your balance sheet? If you're like many, it has probably been quite a while.

Unfortunately, the first time many owners really take a serious look at their Balance Sheet is when the attempt to apply some valuation formula. Unfortunately, what they often see is a Net Worth line distorted by entries for "goodwill," "amortization," and notes payable or receivable from various officers and owners.

If you expect to sell your business be advised a buyer is not really going to be interested or willing to pay you back for all the money you have loaned the business. If the business has any value, it should have already done so or be in the process of doing so!

If the debt is owed to a finance institution or a leasing company then "yes" that has to be taken care of... it is a legal obligation and someone will have to pick it up. On the other hand, that $25,000 you loaned the company three years ago to keep it afloat is still on the books. It actually increases your company's net assets and thus net worth, but is it a real net asset?

One of the best things you can do is to recast your balance sheet in terms of ONLY tangible assets and liabilities. Then take a look at any personal notes payable and receivable and take care of these, even at the expense of paying them off before you take out a salary. Yes, you should be able to do both, but if you can only do one, clean up the balance sheet!

Allowances for Capital Expenditures

2010-05-01T10:33:00.003-04:00

There is little doubt that our industry is capital intensive, requiring constant replacement and upgrades of equipment and software.

When valuing a business it is important that the business you anticipate buying (or the one you are selling), is able to afford three things:

(1) Pay you a "living salary" according to a formula outlined by Larry Hunt and myself.

(2) Be able to fund and support various capital expenditures during the 2-4 years the business is being purchased or sold. This is the specific reason why we do not include "Depreciation" or "Interest" payments as part of owner's cash flow or owner's compensation. For most small businesses, these are ordinary and very real expenses of a small business. They are not merely paper transactions that can be dismissed with accounting tricks and terms.

(3) All the while, the business must also be able to consistently generate enough excess earnings to pay the seller his asking price. Yes, that's quite a task, and that's why most businesses are worth very little and while many more simply close their doors.

To quote one source, "You must deduct appropriate amounts from the "owner's benefits" number in order to determine both the true value of the business as well as its ability to fund future expenditures."

NHTSA Bought and Paid For By Toyota and Others

2010-03-12T15:13:00.003-05:00

The post below has nothing whatsoever to do with the printing industry, so read at your own peril...

Ever wonder how many (not if, but how many) current or past employees of National Highway Traffic Safety Administration (NHTSA) end up with cosy "Sweetheart" deals with those in the automotive industry they are supposed to regulate?

For all intents and purposes, Sec. of Transportation Ray Lahood was himself looked upon for years as nothing more than Caterpillar's convenient "bootblack," thanks in large measure to all the campaign contributions he received from same.

What galls me most was his fake indignation a few weeks ago when he appeared before a House Transportation Committee investigating the recalls by Toyota. When asked about the cozy relationships between employees of NHTSA and companies like Toyota he responded with great indignation.

The only indignation that ought to be raised would be if there was NO connection between current and former employees of NHTSA and companies like Toyota. Of course there are connections, but no one wants to take the time to investigate the revolving doors, the bribes, the kickbacks and the promises of jobs and contributions in return for favorable votes.

Do you realize that not once in its history has DOT or NHTSA ever sought and received a court-ordered recall against an automobile manufacturer - NOT ONCE! Every recall in the industry has ultimately been the result of self-policing by the industry itself, not the result of the federal agency charged with supervising the industry.

Quite honestly, the whole thing stinks!

Bounty for "Security Tool" Developers

2010-03-12T09:03:00.002-05:00

To say I am furious would be a huge understatement.

Last night I discovered my home computer had suddenly been infected by a program called "Security Tool." This is an incredibly malicious program that basically takes over your computer, tells you that you have all types of trojams and other viruses and then promises it will remove all these infections for a fee!

If you choose not to pay the fee and say "Ignore" instead more windows just keep popping up....

I tried going to the Control Panel to use ADD or REMOVE and "Security Tool" prevents you from accessing this window..... I tried to go to I.E. or AOL so I could search out solutions and I couldn't even get these programs to down load because "Security Tool" Windows had literally taken over the computer.... they could not be minimized or deleted and thus prevented accessing any other desktop functions or programs.

I can't believe these folks (well documented on the Internet) get away with this type of criminal activity. These people are scum and don't deserve to live, and someone needs to get to these folks.

I will pay anyone $500 to get me the name and address of one or more principles of this company.... Actually, I don't care if it is a secretary, janitor or programmer... I just want a working phone number and good address that I can visit or send a package......

Somehow, I will get their kids, pets, or parents... and if the FBI sees this I don't give a shit!

Bemoaning Cut-throat Pricing

2010-03-11T12:02:00.002-05:00

Just had an owner of a mailing company call me. He wanted to ask some questions about the 2009-2010 Mailing Industry Pricing Study. Within a few seconds it was apparent that most of the answers to his questions could be found on my website, so I suggested he visit site. He told me that he was already at the site, but just didn't have the time to read the stuff! Wow, this sounds like a good candidate to purchase a study. "He doesn't have time?????"

Well, at this point I am thinking to myself that I really don't have a lot of time nor the patience, nor the inclination to try and "sell him" a study. When he asked when the pricing data was gathered I told him in early 2009 and he laughed, saying, "Wow, that's pretty old, considering everything that has been happening, ya know." No, I really don't know.

I asked him what he meant when he said, "everything that has been happening," and he added, "Well, you know, all the price cutting, you know due to the economy."

I started to tell him that the "price cutting" he was referring to has been happening in the printing and mailing industry at least back as 1970 when I first got into the industry.

Well, he didn't want to hear anything about that, and I am sure he didn't want me to tell him why prices vary far more within individual markets than they do from one section of the country to the next. I wanted to tell him about the good, profitable companies out there that are not cutting their prices, but I figured those comments would simply fall on deaf ears!

I finally told him I had to go and quickly hung up on him. I really didn't feel too bad about that since during our brief conversation he had interrupted the call three times, twice to take two other phone calls and a third one in which he carried on a lengthy discussion with an employee who obviously entered his office.

Must be one of my bad days!

Seller is deluding himself!

2010-02-10T13:41:00.003-05:00

I am dealing with a franchisee in the Northwest. There are some health problems in the family and he has decided to sell. The problem is that even when both he and his wife were healthy he had deluded himself into thinking it was Ok to invest in his business for the long term while forgetting short-term performance. The business is doing approximately $475,000 in sales.

The business was originally purchased with the hope of turning it over to a son-in-law. When that didn't turn out and the in-law moved to another state, the owner was forced to take a serious look at the business and try and make it grow.

Bottom line now is that he has four employees in addition to he and his wife. Three of the four employees are so highly paid that he is lucky if he can pay his wife $16,000 plus cover her healthcare costs of about $12,000 a year. What about his salary or compensation? I don't think he has ever paid himself a cent, choosing instead to "invest" in people and equipment - at least that is what he would have us believe.

His rent represents 14%, of his total sales; his payroll (excluding he and his wife) is approximately 40% of sales, and almost 45% of those sales are brokered. His sales per employee is hovering in the $80,000 range and he has no idea how bad this is, let alone the rest of the ratios.

Oh, I forgot to mention. He has a note payable to a local bank of $450,000! The current net worth of the business is approximately -$425,000! Net worth of the corporation is -$430,000!

He has been trying to sell the business (once again for health reasons), but when the franchisor has hinted that it isn't worth the $350,000+ that he thinks it is he just argues with them. They brought me in to do a valuation and my generous estimated value was $205,000, and that assumes that the seller will absorb all assets and liabilities (except for equipment), including that $450,000 note!

I just sent off a detailed valuation report to the franchisee, and I am awaiting his call where I am sure he will gloss over all these serious problems, and try to convince me about the great "potential" that this business has to offer for the right buyer!

If you think you can sell a business or value a business based primarily on "its great potential" I think you are deluding yourself, just like this owner is doing.

Rise and Fall of Mallard Press

2010-02-05T15:40:00.003-05:00

I normally don't find a lot of time to read a lot of industry publications, but I strongly want to urge readers a two-part article that appears to be making the rounds in the printing industry.

Titled "The Rise and Fall of Mallard Press," the interview appeared in a special interest newsletter titled Print CEO which in turn is published by Whattheythink.com. This article is well worth the 15-20 minutes it will take to read.

Payroll Costs - What's Included?

2010-02-03T11:18:00.002-05:00

Just had a printer call me with a question as to who or what should be included under payroll costs. Specifically, she was referring to a statement that I made in Quick Printing Magazine that suggested a payroll ratio of 26-28%. She asked what about salaries and commissions paid to outside sales reps.

My answer was pretty straight forward. All salaries, wages and commissions for all employees, excluding a single owner, should be included in this calculation. And that of course would include outside sales reps.

Remember, that employer's FICA, medicare, workman's comp., health insurance, and unemployment payments should be included in this calculation. If the expense wouldn't otherwise exist but for the fact that you have employees then it should be included in or under payroll. By the way, that would even include payments made to outside payroll services or money spent internally to generate pay checks.

Large Customer Impacts Business Value

2010-02-03T09:36:00.006-05:00

Within the past two months I have encountered two different firms, each of which had one specific customer that accounted for approximately 50% of all sales!

One case involved a $575,000 company with one customer accounting for $250,000 of those sales; In the second case, the firm had annual sales of $1.55 million, with a single customer accounting for approximately $700,000! Almost hard to believe.

Both firms are indeed profitable, with one qualifying in the top 25th Percentile in terms of profits. However, the vast majority of potential buyers out there will simply not consider a company like this, almost regardless of offering price, when a customer represents that large a percentage of sales.

In one of the situations there is 3-year printing contract up for renewal. If the contract is renewed it would make the purchase a bit easier to swallow, but most printing contracts that I have seen are not that rock solid. Even if we had a contract in place, a smart buyer would make the sale contingent upon retaining this customer and/or the length of the purchase contract would equal the length of printing contract. Also, if the buyer could not finance the purchase out of excess earnings during that same period of time then he probably should walk away.

In the other situation, there is a sibling who has been working for the business for more than 15 years and the parent's are ready to sell. However, there is a huge difference between what the father thinks the business is worth and the sibling who wants to buy the company. By the way, the sibling is the one responsible for attracting and maintaining the $700,000 account.

In a real sense, the sibling has the parent over the proverbial barrel and lately discussions as to the purchase of the business have gotten quite heated. What is really surprising is that neither the sibling or the parents have discussed the value of the business or its purchase in the past 15 years!

So now what happens. Stay tuned...

Good Feedback on Brokering

2010-01-14T10:01:00.002-05:00

I have received an unusually high number of comments on my January 2010 column titled, "Brokering - Hey It's All in the Numbers!"

The column clearly noted that the amount of gross sales that you broker is not the key factor in determining your profitability, but rather how you handle and disperse that gross profit among the remaining expense categories (fixed or variable) that must be covered.

In almost all cases involving brokering, the more you broker out, the lower the gross profit, and the lower gross profit the greater the necessity to reduce expenses in either one or both of the remaining company expense categories - payroll and/or overhead.

Can this be done? Absolutely, and a letter I received which is reproduced below illustrates that you can broker out and still be quite profitable.

"Dear John, I really enjoyed your article in this month’s issue of Quick Printer. I do have a question though, what is the average commission percentage that is paid to the sales reps on the gross profit? - i.e. If there is $1000 gross profit on the job, what percentage goes to the house vs the sales rep. Sales reps are commission only at my shop. I am the owner of XYZ Printing & Graphics. We are a small 6 person printing shop in Northern California (location has been fictionalized) and our sales are about 1.85 MM. We broker about 50% of our work. Thank you for your insight."

My response to his specific question is that I would need to have more info since a $1,000 gross profit might represent a 50% gross profit or a 10% gross profit, so in terms of dollars alone I could not say.

However, what caught my eye was the $1.85 million in sales being produced by six individuals. Assuming the owner is included in that number the firm's SPE would be $308,000; Even if the total number of employees increased to seven (including the owner), the SPE would still be $264,285! In either case outstanding SPE's, even though 50% of all sales are brokered.

Now, this owner did not mention his net profitability, but based upon the calculated SPE's I am assuming that his company is quite profitable, since there tends to be a pretty clear relationship between SPE and net profits. It may not be linear but it exists nonetheless.

Fraudulent Veteran's Organizations

2009-12-15T14:50:00.003-05:00

Nothing, nothing gets my blood boiling faster than to stumble upon an organization claiming to be non-profit and raising money for veterans when the facts prove otherwise.

I wrote an article a couple of years ago and today that article prompted a call from the Veteran's Administration in NY. They called and asked me what I knew about the The Veterans Alliance Service Center or the American Veteran's Alliance. Have they not heard of the Internet?

I told them I knew enough to call both of these organizations fraudulent to the core and anyone who has ever throughly checked out these organizations would know that to be true. When you don't list a mailing address, when you don't publish annual financial reports, and when you give less than 50% of what you raise to veterans then in my opinion as a veteran you are perpetrating a fraud - plain and simple!

What is really sad is that these organizations and others as well (most try and use the word veteran or soldier in the name) continue to operate and raise money all around the country. How do they do it? it is simple.

They approach the manager of a grocery store and say they are raising money for veterans. Most of these managers are encouraged by their corporate headquarters to become involved with the community so when the Boy Scouts, the Girl Scouts, the local softball league or even a local gymnastics team wants to set up a table outside the store they almost always get permission to do so. The same holds true when these managers are approached by someone claiming to represent veterans.

The mere fact of being allowed to collect money outside of the grocery store automatically acts as an endorsement of the organization. Unfortunately, some of these organizationa are not what they seem, certainly in the case of these veteran's groups.

What is really sad is to see people leaving the grocery store and dropping $5 or $10 into a jar believing it will go to help veterans... the only person that money is going to help is the guy working the table as well as the person he is working for... that's about it... in a few cases they may donate 4% or so to keep it legal...

So, if you are Ok with giving $10 to one of these groups knowing full well that only 40 cents or so may end up helping a veteran then be my guest, but you are both a fool and doing a disservice to veterans around the country.

Working for the "Family"

2009-12-15T09:55:00.003-05:00

A couple of recent consulting jobs reminded me of an on-going problem I have observed in this industry - family members, typically second generation, working and managing the businesses (for parents and/or parent-in-laws) with no written agreements as to how, if ever, ownership of the business will be transferred or sold to the next generation.

A classic case, repeated many times, is the best described as an example with fictitious names.

Steve married Karen 19 years ago. Karen's parents owned Quickie Print. About eight years ago, Steve was invited to join Quickie Print and soon became its manager. Under his direction and management, the company experienced healthy rates of growth and profits, with sales in 2009 projected to top $1.6 million. Steve has been well rewarded with an excellent salary package and benefits.

During the past five years or so Steve has discussed with his in-laws on numerous occasions the possibility of buying the business. The in-laws, especially his father-in-law, have always tended to be vague about what they thought the business might be worth, or even whether they were really interested in selling it.

About two years ago, Steve's in-laws decided to semi-retire to Colorado, drawing out healthy dividends from the business. In the meantime, Steve continued to manage the business full-time. Buying the business had slipped to the back burner.

Well things changed dramatically about six months ago. Steve and his wife got a divorce. The divorce was amicable, but it highlighted Steve's tenuous position in the business. He wants to buy the business, but his father-in-law, when pushed for an "asking price," has mentioned a totally unrealistic price.

Now, what does Steve do? In one sense, he has the in-laws over a basket. For all intents and purposes he is the business and if he left and took some accounts with him Quickie Print might not survive, short of the in-laws returning back home and taking over all management responsibilities. On the other hand, Steve has invested his heart and soul into this business for the past eight years but still has no stake in it whatsoever - he's just another employee and he has no equity in the business.

Comments - In eight years neither party really sat down and put in writing how the business might be valued and when and how the business might be sold. Sad! Steve is in full-charge of the business and makes a healthy salary but has absolutely no ownership stake in the business.

If you recognize your own situation in the above, whether you are a son, daughter, daughter-in-law or have any similar relationship and you are working in a business owned by parents, you need to clarify exactly where you stand, when you can purchase the business, and agree on a specific method for valuing the business. Of course, the same situation would also apply to a long-time manager who has been promised time after time, as an inducement to remain with the business, the opportunity to buy it "some day." Days turn into months, and months turn into years and still nothing is put in writing.

One good start, at least in terms of valuing a business, would be to purchase "Print Shop for Sale." Another idea might be to email me and discuss your specific situation. I will be glad to help if I can.

Employee Theft Leads to Company Closure

2009-12-04T16:18:00.002-05:00

EUGENE, OR—An ex-bookkeeper of a now-defunct printing company faces upwards of 100 felony counts for allegedly bilking the firm of more than $1.5 million, an act which may have contributed to its demise.

I just read the above in an email blast from Printing Impressions. I really have to wonder, despite the fact that I know this happens hundreds of times a year to printers around the country, why the owner didn't suspect or catch the thief a bit earlier.... you know, maybe started wondering about where $250,000 had gone, or maybe the first $500,000 or even $1 million.

One thing is for sure, I will bet (based on profiles of employee thefts of this magnitude) that she was a long-time employee, very dedicated and if true to form probably didn't want to take time off for vacations. Of course if you've working for a firm from which you can steal $1.5 million before getting caught you ought to be pretty loyal and dedicated!

You can read more about the story as it appeared in PI by going here:
http://www.piworld.com/article/former-employee-charged-15m-theft/1?sponsor=newsletter/pi-weekly

I too can see Russia from my back door!

2009-12-02T11:06:00.006-05:00

I just had cataract surgery performed on my right eye yesterday, and I mentioned this to a conservative friend of mine.

My friend emailed me back suggesting that if my surgery went well I would probably be able to see things much clearer now and would thus, by definition, probably become a Republican!

I wrote him back and said he was right. I can now see so clearly that when I go to the back of my house and look west across the Intercoatal Waterway I can see all the way to Russia just like Sarah Palin.

P.S. I know a lot of soccer moms and most of the ones I know are a heck of a lot smarter than Sarah Palin. In fact, she has given the term "soccer moms" a bad connotation. Just my thoughts.

P.P.S. By the way, cataract surgery and the medical advances it represents is nothing short of amazing. To be able to operate on such a small, complex organ and to be able to do so on an outpatient basis with little or no pain whatsoever is a testament to how far we have come in medicine in such a relatively short period of time.

Significant Statistical Changes Expected

2009-12-02T10:49:00.003-05:00

We are in the early stages of preparing the 2010 Operating Ratio Study for the Printing Industry. Although the availability of customized one-on-one reports (introduced for the first time in 2008) is still in question, the study itself will be published in full as it has always been.

What is both exciting and intriguing will be uncovering changes in levels of productivity and sales wrought by the changes in the economy during the past 24 months. Thanks in large part to the huge data base available to NAQP and Q.P. Consulting, we will be in a unique position to provide special insights as to how the economy has impacted printers and different ends of the spectrum. Specifically, we will be comparing printers of all sizes and types and examining how the economy has impacted their sales and profitability in the past two years.

I can only speculate at this point, but I would surprised if those previously in the top quartile will continue to report healthy owner's compensation in the 22-24% range. I won't be surprised, however, if these same firms report either minimal sales growth or even some decline. The smart firms, I suspect, will have concentrated on profitability. I also suspect that the lower profit firms at the other end of the spectrum will have concentrated their efforts sales at the expense of profits, and in many cases failing at both.

For those who participated in the 2008 survey and received a customized report, I would be interested in your input as to the overall value of those customized reports, as opposed to the more generalized ORS reports published previously.

Great Time For Setting Goals

2009-12-01T10:10:00.002-05:00

I love the holidays because I can always find some "quiet time" to sit down and reflect on the year just ending as well as to project what changes we might be able to bring about in the coming year - in this case 2010!

You shouldn't have to wait for an accountant to get a preliminary P&L and balance sheet for 2009. Even an 11th month statement will provide you with all the data and ratios needed to set some new goals for 2010.

You need to take a yellow highligher and circle key ratios such as cost of goods, cost of paper, total payroll expenses, overhead, etc. and then compare them to what the leaders in this industry (in your sales range) have reported.

Where do you get this information? Well, I hope you have a copy of NAQP's 2008-2009 Operating Ratio Study. There is no more important or useful document than this study and if you don't already have a copy you should order one today from NAQP. Call them at 1-800-234-0040.

Holidays and Competitor Surveys

2009-12-01T09:53:00.003-05:00

For many printers the holiday season brings with it a slowdown in sales. So how can you fill this time with a beneficial project that will help you in 2010? Conduct a survey of competitors that will reveal not only their pricing practices but the cleanliness of their facilities and the friendliness of their CSR staff.

As I write this blog I have a client who is undertaking just such a project. He has chosen 11 competitors in his market area. He has avoided choosing "garage" printers, and instead has selected printers with good reputations and longevity in his local community.

He has selected approximately five items, with two quantities for each, that he would like to survey. He has prepared an informal looking bid sheet and has hired a woman to conduct the project for him.

She is a local graphic artist and has been instructed to spend the next five days personally visiting each location under the guise of starting up her own graphic services business, and thus needs to get some printing done. She has also been instructed to tell each printer that she is not necessarily looking for the lowest price, but rather she wants to establish a long-term relationship with a local printer.

In addition to recording all prices and estimates she receives, she has been instructed to take notes on the overall appearance of the location and how she was treated by the CSRs who assisted her. She is also to record exactly how long it takes to receive quotes from these printers.

The goal of this market survey is to establish where this client fits in regards to pricing specific items and the measure how competitors rate when it comes to overall customer service and responsiveness to requests for quotes.

We expect that at least 2-3 printers on this list will fail to get back to our shopper in the 3-4 days allotted for this project.

I will report back on our findings. Happy holidays.

Nice Note From Client

2009-11-18T15:00:00.009-05:00

Just received the following from a recent client. It is a small portion of a lengthy email in which the client reports on the progress he has made in less than a week. Emails like this go a long way for making up for the long hours of on-site consulting, the lengthy air travel, and the 15+ hours spent writing the typical consulting report.

Good morning John,

We too really enjoyed our time with you last week. You're right, we covered a lot of ground. If I felt out of breath when I dropped you off at the airport, I can't imagine how tired you were. It was an incredibly awesome and inspiring experience for Katherine and me. Any doubts we may have had about the "cost" are a distant memory. I have more enthusiasm today and faith today than the day I entered this business 25 years ago.

Sales Dominated by One Customer

2009-11-16T15:15:00.003-05:00

One of my recent blogs discussed a printer who has one customer that accounts for approximately 52% of total sales. What makes this situation even worse (at least in my opinion) is that all the work that is done for this customer is brokered to an outside trade-printer.

Brokered or not, the most dangerous aspect about this situation is that very few if any buyers will buy a business that relies on one or two customers to produce a majority of its sales. You can rationalize all you want about how great the customer is and how you will never lose the customer, etc., etc. but the facts remain no one will buy a business so heavily dependent and reliant upon one or two accounts.

Therefore, while you may be making money in the short run, it is also quite likely you are losing money in the long-run, since most valuation formulas rely on a multiplier or "capitalization" rate to determine value and that multiplier will be much lower than normal due to the heavy reliance on one customer.

Tentative About Tweeting...

2009-11-12T21:51:00.005-05:00

Yes, a good friend of mine, Armand Girard, finally got me set up with a Twitter account and password about a week ago, but to be honest, I have yet to twitter.

I'm trying to build up my confidence and understanding how this all works. Suppose no one follows me, or suppose I decide not to follow someone else on Twitter? Will I hurt their feelings? Can I get folks to go to my blog and read the stories? Do I need to tell folks what I had for lunch? This is almost too much!

What have I done? Well, I will confess I have now hired a local consultant to help me with all this and I hope to post my first twitter very soon... I know the world (at least two or three people) is waiting to read my first twitter, and I consider it a huge responsibility!

Brokering Destroys Value of Business

2009-11-12T21:10:00.003-05:00

When brokered sales reach certain levels in a printing company, the value of that company tend to drop off dramatically, so much so that the company may have no value to formerly qualified buyers.

Case in point, a company stumbles on an outstanding opportunity to provide a large amount of flexography to a nearby growing company. The owner develops an excellent relationship with two individuals in the company. Neither of these individuals own the company but have extensive purchasing authority. Within a relatively short period of time, this account grows from $10,000 to $20,000, $50,000 and eventually to more than $180,000 annually!

When the jobs started coming in, the owner, who tends to be timid when it comes to pricing in-house jobs, decided to markup every job, large or small, by 100%, thus producing a 50% gross profit. The gross profit on this one account continues to be 50%! By now, the brokered work has grown to the point that it represents approximately 60% of total sales.

In the past 12 months, the company was approached by another printing firm who was looking to acquire another local printer. However, as soon as the prospective purchaser discovered that 60% of the sales of the entire company, and about 90% of all brokered work, came from one customer he backed off quickly, never to be heard from again. No one will touch this company, even though the owner would like to sell.

Easy to suggest that this company needs to refocus and concentrate on in-house sales, but the reality is (as it is in so many cases) that the tail is now wagging the dog, and the risk and fear of losing this HUGE customer dominates almost all of the day-to-day activities of this owner.

All it will take is for one of the two people in purchasing to have a heart attack, or the death of one of these two individuals, a change in ownership at the client's place of business, or even a casual sales call by another printer and everything that this owner has worked to build will collapse in a matter of weeks!

This is a true story with no happy ending. We are now in crisis management mode trying to turn this situation around as quickly as possible, but that is going to be very difficult.

Meanwhile, two or three times a week, the client calls the printer and gives him another $1,500 to $2,000 order that needs to be filled.

A consultant's Nightmare...

2009-11-05T14:27:00.002-05:00

Well, this is a first. Client wants me to prepare a valuation for his firm. He is buying out his partner. Nothing terribly complicated about it. He sends me, by mail, all requested information and we talk two or three times by phone. When I have the preliminary draft prepared I grab his business card which he had enclosed and send it off.

Twenty minutes later the client calls and sounds harried. He is on the road attending a conference but wants to let me know that the email address I sent the report to is a shop-wide address and that it is not a private email address! He is not mad per se, but I could detect some frustration in his tone.

He assumed full responsibility for the mix-up, and tells me when he was gathering the info together he couldn't find one of his special, private business cards so he sent me a business card with HIS name on it, but not with the email address for sending and receiving confidential information.

Oh well, I've had equally, if not more, embarrassing situations happen to me in the past. I guess the lesson to be learned is to double-check which address the client really wants you to use when sending confidential information.

Improve Your Financial Reporting Instantly!

2009-11-02T15:25:00.003-05:00

Nothing irks me more than to receive a set of financial statements, no matter how detailed or well organized, and yet discover they are lacking the most critical element of all - the key ratios or percent of sales column over on the right hand side.

If you are using Quickbooks, this is all you have to do to produce a much more informative set of financial statements with these ratios automatically calculated.

When producing a profit & loss report, but before printing, look up towards the upper left on the toolbar and click "Modify." This will bring you to a new screen that allows for all types of special formatting.

Look towards the bottom and click the "percent of sales" box, and then hit Ok. Voila! You now have a profit and loss statement with key ratios such as paper costs, payroll, overhead expenses, etc..... all the key ratios one needs to have readily at hand to analyze your business!

This same type of formatting is available in virtually every accounting package on the market. You just have to search for it. Once you've found it, make sure it is memorized and from that point on every time you produce your reports the ratios will be calculated.

Depreciation vs. Multipliers

2009-11-01T10:52:00.003-05:00

Although depreciation is not a direct cash expense, "Print Shop for Sale" nonetheless treats it as an expense when calculating owner's compensation and more importantly excess earnings.

Do not assume, however, that because we include or treat depreciation as an expense that it automatically results in a lower valuation method. Our valuation method is just as likely to poduce a higher valuation than a lower one - in either case it is a "fair market" value that is both practical and realistic from both the buyer's and the seller's perspective.

How is this accomplished? "Print Shop for Sale" uses a very detailed questionnaire for calculating its earnings' multiplier. This multiplier, because it relies on weighted answers to 14 different, industry specific questions, often results in a much more accurate multiplier than those used by many business brokers.

See "Print Shop for Sale" for further details. (www.printshopsforsale.net).

Valuations and depreciation

2009-10-31T16:08:00.002-04:00

Ask a business broker to place a value on your business and 99% of them will exclude depreciation and interest expenses from net operating expenses, and as a consequence they will often arrive at a significantly higher valuation than what Larry Hunt and I would arrive at using our business valuation methods.

Why? Because we view depreciation as a real expense to be considered, not a purely hypothetical $$$ amount that can be casually added back to net profits and translated into an increased valuation of the business. Why do brokers do this? First, it often leads to a higher valuation and a higher valuation always pleases the seller and brokers almost always represent the seller.

If you purchase a $100,000 piece of equipment and depreciate it over five years (straight line) then your Profit and Loss statement will report a depreciation expense of $20,000 each year. Most brokers will add that $20,000 back to cash flow when attempting a valuation. We, on the other hand, will treat it as a legitimate expense, even though a check was never written in that year.

On the other hand, suppose at the end of the year you decide the purchase was a terrible idea and you call the dealer or run an ad in a trade magazine. What do you think that piece of equipment will sell for at the end of the year? Do you think you can recover 80% or $80,000? Chances are good that you will be very lucky to recover even $80,000. Most likely you will be offered less. Whatever the offer, I think we most of us can agree that we will get significantly less than we paid for it and it is the difference between selling price and current value that depreciation is supposed to represent. When you sell an asset for less than you paid for it that is depreciation and that is exactly what you end up doing when you sell the business... you end up selling earnings potential and the assets used to produce those earnings.

What happens if you depreciate that piece of equipment over a five-year period of time. What do your financial statements look like in the sixth year? Well, assuming that piece of equipment was the only purchase in the past five years, your financial statements are no longer reporting a depreiation expense and your balance sheet shows an asset value of $0! In "Print Shop for Sale" we would assign a real-world, market value to that asset since it no doubt has some residual value while at the same time continuing to produce earnings for the company.

More on this topic later.

High Payroll Costs Killing Three Firms!

2009-10-29T19:56:00.004-04:00

In less than six weeks I have consulted for three firms, ranging in sales from $400,000 to $1.6 million and in all three cases the numbers were nothing short of shocking.

One company had allowed its payroll to skyrocket to more than 41%. With typical COG running at an average 26-30% and general overhead expenses running in the mid 30's, this company was bleeding "red" ink.

Shockingly, the owner had never really isolated his direct and indirect labor costs. He simply didn't know what to look for and needed prodding just to take the first step.

What was the first step? Terminate at least 3 employees in the next 48 hours. He did that. Another employee gave the owner her notice about a week later. Her notice had nothing to do with the turmoil at the company. What are the prospects that this company will survive another six months? Probably less than 50-50.

Another company in the midwest had labor costs at 37.6%. Once again, when you see a number like that you ought to react immediately, and not sit back and wonder how much more sales need to increase to bring that number back in line. It really can't be done. Don't delude yourself.

NOTE that is cases where Payroll Expenses are cited, they should not include wages, salaries and benefits paid on behalf of the owner.

My third company is doing a bit better, and has a bit more breathing room, but even this company is in serious troubles with payroll costs above 32%.

By the way, two out of the three companies mentioned above have clearly been violating FLSA (Fair Labor Standards Act) regulations by placing one or more employees on salary and expecting the employees to work "whatever hours are necessary" to get the job done. In one of these cases, the owner has already been fined and is looking at an audit that will cost him $1,000's of dollars in time reviewing payroll records for hundreds of employees going back more than four years.

Anyone who thinks you can simply place someone on an annual salary and thus be exempt from paying overtime is most likely a fool. I couldn't say stuff like that on list servs I formerly belonged to, but I sure as hell can say it here. You are playing with fire when you place anyone on a salary and assume that they are exempt from overtime regulations.

I spent more than 30 minutes today with an owner who was trying to find some loophole that would justify keeping one employee on salary.

By the way, the audit mentioned above - how was it initiated? By one former employee who decided to make a formal complaint with the local wage and hour board. That's all it took to get the ball rolling, and once it started rolling it just got bigger and bigger!

Wage Freeze & Reduction in Benefits

2009-10-20T10:51:00.006-04:00

A reader just commented on my previous post, by asking, "John, what about a wage freeze or benefit cuts? We are seeing again this year a double digit increase in health and pay 75% of that cost. I am looking at not keeping during our slow time, one employee and cutting back to 35 hours the rest of my staff or giving raises to spring or summer."

I believe that either one or both of the first two alternatives (a pay freeze or cut in benefits) are preferable to a reduction in salary. I see nothing wrong whatsoever with freezing wages until some time in 2010. As for cutting benefits, such as selecting a new health insurance program with higher deductibles, I have no major problem with that approach either.

However, I disagree with the "cutting back to 35 hours" because once again you are asking everyone to suffer by instituting a 12% cut in their salaries. Sure, cutting hours back to 35 is better than a reduction in hourly pay, but the net result is the same, a reduction in take-home pay.

Sure, the employees are working fewer hours, but just as important, if not more so, is the fact that their real-world take-home pay is being reduced as well. Most employees live from week to week and paycheck to paycheck and in this scenario everyone will feel the pain.

A better solution (in my opinion) is to terminate one employee as opposed to reducing the take-home pay of all employees. Granted these decisions are not easy to make. Terminating an employee is much more painful for both the employer and the employee who is terminated.

Then again, no one ever said running a small business is supposed to be easy.

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Reducing Wages vs. Terminating Employees

2009-10-19T09:14:00.004-04:00

The subject of whether you should reduce wages (i.e. lower the hourly rate for all employees by a specific percent) as opposed to terminating an employee has come up on two or three occasions in the past couple of months.

In one case specifically, a former client told me how much she was sacrificing to save her business and she had instituted an across-the-board pay reduction of 15%. In another case an owner asked me in advance what I thought he should do, reduce payroll or terminate employees.

I am emphatic that you should never penalize an employee team by exacting from them something they previously earned. If business slows down dramatically, it is your responsibility to lead the company by making hard decisions, and in my opinion reducing hourly rates in order to assure that everyone keeps their job is not the way to do it!

Most owners are exposed to the idea of reducing hourly rates across-the-board from listening to the evening news and hearing stories about trade unions agreeing to accept a cut in pay. Think about it, from the employee's standpoint and even more so from the union's standpoint, that is a smart move. The employees love the union for saving their jobs and they hate the employer for reducing their wages. The union finds itself in a win-win situation. The bottom line is what works for larger corporations and unions does not work for small businesses.

If you have a team of seven employees and their total annual payroll is $237,120 and you decide to reduce their payroll by 15%, that will lead to an annual savings of approximately $35,568.

Every single employee will be affected by this pay cut and every single employee will suffer. Worse, the pay cut will probably be accompanied by a speech by you that says something to the effect, "Folks, we are going to have to work harder than ever before as a team and I expect everyone to pitch in during these challenging times."

No matter how hard you try and no matter how sincerely you make your case, they will not believe you, even if you tell them you too are taking a paycut, or haven't received a paycheck in three months.

What will happen is that seven employees will be disgruntled by the suggestion that they should continue to work just as hard but work for 15% less pay than they received before. Every single employee will feel this way, no matter what you say or do.

My strong suggestion is that you thoroughly examine you list of employees, calculate your SPE which is probably lower than it should be, and then terminate the least productive of the team. In a real-world scenario involving seven employees with hourly wages ranging from $20 per hour down to $12 per hour, the reduction of virtually any single employee (but for the lowest paid) will accomplish the same $$$ savings that you would have accomplished from a 15% pay cut across-the-board.

Told of the options you faced after you have made the decision, the remaining employees are far more likely to respond to a pep talk than a speech announcing a 15% pay cut across the board.

A pay-cut embitters all employees, while a termination impacts only one.

A pay-cut will most definitely negatively impact the morale of the entire company, forcing many of the better employees to start looking for other jobs. A termination of one employee, on the other hand, will clearly convey to the remaining employees how serious you are and the steps you are prepared to take in order keep the company going.

By the way, don't be surprised, especially if you terminate the "right" employee, that one or more employees come up to you later and gently chide you that you should have made that move much earlier.

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Things You Absolutely Cannot Do...

2009-10-12T21:31:00.004-04:00

A recent consulting assignment was one of the most challenging I have ever tackled... $1.2 million in annual sales and was/is bleeding to death... The full story will have to wait for a week or two, but some lessons learned can be shared now.

Never, never loan your company money without a specific, documented plan for repayment. The only worse thing you can do is make another loan to supplement the first. If your company owes you money (check your balance sheet) and your cash flow is low or non-existent, make installment payments to yourself in lieu of taking a salary. You will save on payroll taxes and improve your balance sheet.

Never, never fool yourself that you can survive with an SPE below $100,000. The chances are good that unless you take immediate steps to improve productivity (and your SPE), that your SPE will drop rather than improve.

Never, never allow your total payroll to rise above 30%! There is no way a company with payroll costs at or above 30% will survive in the long-run. Don't lie to yourself and your spouse that things will get better. They won't so long as you ignore this number.

Never, never ignore your financial statements - The most troubled companies I have encountered these past three years are those that either don't receive financial statements on a regular basis, or if they do they never read them and compare them to the readily available ratios that can point the way towards survival and turn-around. If you want more information about some of these key ratios check out my recent blog that discusses "the six pack" of flying instruments.... (or something like that. )

It's late at night and I wish I could share more of my thoughts, but I spent 18 hours visiting with this firm and at least another 18 hours trying to pull my thoughts together and recommend step-by-step measures that might, just might save this company.

There's one very special problem I encountered with this consulting visit, but I could not bring myself to tell the client and I am still trying to determine whether it should be mentioned. I may share this in a future blog.

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Break-Even Analysis Spreadsheet

2009-10-09T10:37:00.006-04:00

You can now download an easy-to-use Excel Spreadsheet that allows you to play various "what-if" Break-Even scenarios.

All you need is a current set of financial statements, from which you will be able to extract your total fixed overhead expenses, your cost of goods as a percent of sales, and your payroll figures, extracted either as a fixed dollar amount or as a ratio.

To download, click the link in the navigation bar above or go to: www:quickconsultant.com and follow the "download" link to find the Break-Even spreadsheet.

P.S. You can subscribe to this blog and read new entries as they are posted by using I Power Blogger, or clicking on this link: http://www.quickconsultant.com/blog/atom.xml

Throwing in the Towel & Breakeven Analysis

2009-10-06T12:18:00.006-04:00

You wake up suddenly one morning and realize that your business is going under, and going under fast. What do you do? In some cases, owners become overwhelmed with current debt and in the end they are left with few if any options other than to throw in the towel. If they are lucky, they get to file for Chapter 11 or reorganization, but that is typically so expensive that only the lawyers win in that situation.

In a few cases, calculating your breakeven and then playing "what if'" games with the key ratios might help shed some light on your current perilous situation and it might suggest specific steps you can take to avoid bankruptcy.

Breakeven calculations are designed to estimate the current monthly (or annual) sales required in order to satisfy all of the company's monthly fixed and variable expenses. If your financial statements are properly organized, you should be able to conduct this analysis quickly.

(To download a sample of the Excel Spreadsheet go to my downloads Page)

Cost of goods (and those items listed beneath this heading) are almost always considered variable and are directly expressed as a percent of sales. You need to know what your current COG ratio is in order to calculate breakeven.

What about Overhead Expenses? Generally speaking, overhead expenses are considered fixed, and are usually expressed in raw dollars each month required to cover advertising, accounting, rent, etc. From a practical standpoint, you would not include depreciation as a monthly expense, BUT you would include all interest and note & loan payments, which would normally be found on your balance sheet.

What about payroll - is payroll treated as a variable (thus a percent) or do we treat it as a fixed expense, and thus as specific dollars required each month? I suggest treating it as a variable expense., because that is what it should be.

You need to know what your total current payroll ratio is, including all related payroll expenses such as taxes, fica, workman's comp, etc. Do you include a basic salary for yourself as well? Well, that depends upon the purpose of preparing this breakeven analysis. If you are trying to calculate the bare minimum montly sales required to pay all the bills but before you take out a salary then leave your salary out of the ratio. If, on the other hand, you require at least $3,000 per month to cover living expenses then make sure that $3,000 is included in your payroll percentage.

Here is a practical example of a real world company facing a crisis. This company is currently averaging $100,000 in monthly sales.

Monthly overhead costs (fixed) are $52,000 which includes $23,000 per month in loan and note payments. Monthly COG is running 25% which is excellent.

Monthly payroll, however, is terrible at 38%. So let's figure the breakeven sales for this company required to meet all of its fixed and variable expenses.

The basic formula is: Fixed Costs ($) + (Variable Costs * BE) = Breakeven (BE)

To solve the above, divide total Fixed Costs by (1-variable costs) to calculate Breakeven.

Note Payroll is 38% and COG is 25% for a total of 63%. Using our formula, we have the following:

$52,000/(1-.63) = $140,540

Note the breakeven is well above current sales level, and the company is losing buckets of money each month.

What happens if overhead $$$ remains the same, and COG remains at 25%, but we trim payroll costs from 38% to 28%? Let's re-figure:

$52,000/(1-.53) = $110,638

With that single change (not a painless one, but possible) this company only has to increase sales by $10,000 a month to meet all of its monthly obligations.

Now, recalculate again, and find a place to trim just $4,000 from overhead costs and the breakeven drops to $102,000.

Raise prices by 5% across the board and that automatically lowers the monthly COG by 1.2%, and a new breakeven for this company becomes $99,585.... In fact, the company might actually start producing a very modest profit with these new ratios.

Yes, I've thrown a lot of numbers around above, but a breakeven spreadsheet is easy to prepare and can be very useful for calculating the impact on future profits and sales when various changes are made to certain fixed and variable expenses. I will try, in the next day or two, to post a simple spreadsheet where you can plug-in your own numbers to see the impact of various changes on your overall profitability.

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Keeping Your Ratios in the Green

2009-10-01T10:49:00.008-04:00

A couple of blogs ago, I discussed the "Six Pack" of instruments used by pilots. Monitor and scan those instruments frequently, and a pilot is likely to have a safe flight. The same is true for our "Six Pack" of key ratios in the small format printing and digital copying arena.

Pilots often are told to make sure their instruments are reading in the green, and the same should be true for the instruments we use to run our printing and copying businesses. Below are are the specific numbers you will need to look for to keep your instruments in the green. How do your numbers compare?

1. Profit & Loss Statements - To remain in the green, you must receive financial statements on a monthly basis. Nothing else will do. Even more important is that you must take 15-20 minutes studying these statements and comparing them to previous statements, taking note as to what trends (good or bad) are developing.

2. Payroll Costs as a Percent of Sales - You must keep total payroll costs at or below 29% to remain in the green. As soon as you see this ratio rise to 30% or above you need to carefully examine possible trends that may be developing in your company. You are clearly entering the yellow or orange zone (if not the red zone) if your payroll costs rise to 31-34% or higher.

3. Paper Costs - Paper Costs as a percent of sales should rarely if ever exceed 11-12% if you want to remain in the green zone. Let this ratio climb by even one percent and it is an early sign of trouble ahead. Companies reporting a signficant percent of their sales coming from digital copying often report total paper costs in the 9-10% range.

4. Sales Per Employee - In order to remain in the green, I believe you must maintain or acheive an SPE of at least $125,000. That isn't a great number and certainly doesn't represent the best that can be achieved, but it should be enough to keep you out of trouble.

5. The Current Ratio - Too many printers ignore their Balance Sheet because it sometimes doesn't make a lot of sense. The current ratio rarely appears on you balance sheet but it can be calculated quickly by dividing your total "Current Assets" by total "Current Liabilities." Make sure the entries for both these categories are properly recorded. To remain in the green, nothing less than 1.7:1 should be permitted. Even that is a bit weak, but it would still be in the green. Below that number, and you are drifting into the yellow, orange or red zones - zones you definitely want to avoid.

6. Owner's Compensation - An owner's compensation of 13% will barely keep you in the green, but you won't have the safety margin you need to move forward and grow your business. Ideally, you need to be striving for an owner's comp of 17-20%, which is a level that 25-35% of our industry achieves each year.

P.S. You can subscribe to this blog and read new entries as they are posted by using I Power Blogger, or clicking on this link: http://www.quickconsultant.com/blog/atom.xml

My Airplane - N819CD

2009-09-30T14:35:00.005-04:00

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

2009-09-30T12:43:00.008-04:00

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.)

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.
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.
Paper Costs, while smaller in comparison than payroll costs, can also reveal a great deal about the health of a company;
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!
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;
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

2009-09-28T13:40:00.005-04:00

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)

2009-09-24T09:10:00.006-04:00

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)

2009-09-23T16:02:00.002-04:00

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

2009-09-23T11:56:00.001-04:00

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

2009-09-17T14:17:00.000-04:00

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

2009-09-17T10:19:00.000-04:00

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.

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."

This Business Has Great Potential

2009-09-15T16:33:00.000-04:00

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

2009-09-15T11:11:00.000-04:00

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!

P.S. You can subscribe to this blog and read new entries as they are posted by subscribing using the button at the bottom right hand corner of this blog.

Comedian Jon Stewart's Death

2009-09-11T13:56:00.001-04:00

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!

2009-09-11T09:59:00.000-04:00

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

2009-09-09T15:54:00.000-04:00

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.

P.S. You can subscribe to this blog and read new entries as they are posted by subscribing using the button at the bottom right hand corner of this blog.

New SPE Analysis is Revealing

2009-09-08T08:50:00.000-04:00

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.

P.S. You can subscribe to this blog and read new entries as they are posted by subscribing using the button at the bottom right hand corner of this blog.

Reaching 300lb Bench Press

2009-09-04T15:50:00.000-04:00

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.

New Seminar in California

2009-05-05T17:11:00.000-04:00

It's been a while since I have conducted a seminar, so as you might guess I'm looking forward to the weekend of May 29 - June 1st when I present two seminars for the California Association of Business Printers for their annual - Sun Your Bun's Conference.

The titles of my two seminars will be: "The Art of Pricing and Running Your Business by the Numbers" and "Buying a Competitor - A basic Primer on Valuations." I've prepared some fascinating new slides in Powerpoint that I can't wait to share with the audience. If you're in the California area and need more info, give me a call and I will direct you to the right person.

Quit Blaming the Economy for Your Problems

2009-03-23T15:14:00.000-04:00

I'm tired of all the moaning and groaning in our industry.

There are too many owners out there in the marketplace who are looking in the wrong direction for excuses as to why they are failing or doing so poorly.

Many of them ought to look where most of the blame has always been found - within their own company! If the economy (and granted it is bad in many areas) was the primary source or cause of failure, then all similar businesses - printers in this case - ought to be failing equally, but nothing of the sorts is occurring.

With only one or two exceptions (Michigan being one of them), I know printers located within a few miles of each other and the differences in attitude, productivity and profitability, between the two are nothing short of startling. Some companies, although their sales may be down, continue to report good to excellent levels of profitability. Their SPE is in the $140,000 range and higher and their owner's compensation continues to put them in the top quartile - i.e. 20-24%. (Added on 9/23:P.S. just the other day I talked with a printer in Michigan and he and his partner are doing quite well; sure the local economy has impacted their business, but despite the challenges they are doing quite well, so even Michigan isn't a total exception to what I have said.)

On the other hand, there are competitors just down the road or across town who are constantly blaming the economy or one political party or the other for most of their problems. Hogwash! Many of these companies would find some way to fail even in the best of times. Their SPE is low, their equipment is out-of-date and their employee team, which is typically too large, is often best described as a team of misfits and bad apples.

Quit the excuses and get to work. Start marketing, start improving your company's SPE and get back to doing what only an owner can do - Manage your business with a sense of urgency.

P.S. You can subscribe to this blog and read new entries as they are posted by subscribing using the button at the bottom right hand corner of this blog.

Using Parsley to Boost Image

2009-02-02T11:56:00.000-05:00

Have you ever noticed that the finer the restaurant, and the higher the prices, the plates that are used to serve the main entrees are often garnished with a piece of parsley, or an orange slice or maybe even an edible flower? Paper versus vs linen napkins is of course another way restaurants distinguish themselves. These items and practices don't necessarily enhance the flavor of the food, but because they are a part of marketing, often improve the image of the restaurant and in turn often justify the restaurant's higher prices.

Printing firms, just like restaurants, have a lot of opportunities to add parsley and linen napkins:

How do you package your products?
Do you loosely toss items into a previously used carton, or do you shrink-wrap or band your items before inserting them into one of your own custom-printed cartons?
Is your delivery vehicle incorporate professional signage or is it covered with grey primer paint covering dents that you mean to fix someday?
When was the last time you walked into your own reception area and attempted to view it through the glasses of a customer?
Is your customer service area brightly lit?
Are the floor spotless?
When was the last time the carpet was vacuumed or replaced?
Is the counter strewn with old jobs and left-over soda cans, or is it clean and spotless?

The above tips are no different than adding parsley to an entree. They cost little if nothing to implement, but can help your firm stand-out and hold firm to your prices, even during a serious economic downturn.

P.S. You can subscribe to this blog and read new entries as they are posted by subscribing using the button at the bottom right hand corner of this blog.

$60,000 Client Goes Poof!

2009-01-16T08:56:00.000-05:00

I doubt there are many shops who are immune to the pressures of the current recession. My wife's shop is no exception. Here's an example of what happens when the economy slows down. Apparently, in times like this, even attorneys start feeling the pinch. This leads to their cutting back on costs, and one of those costs are annual subscriptions which can be quite expensive in the legal field. Consequently, a local company that has been producing these reference manuals for more than 20 years says they no longer have enough customers to justify trying to stay in business, and thus they have thrown in the towel. Obviously, they no longer need these manuals copied and shrink-wrapped and suddenly a $60,000 a year copying client disappears for good!

Judge Does it Again!

2009-01-12T13:14:00.000-05:00

Ronald L. Ellis, U.S. Magistrate Judge for the District Court for the Southern District of New York has done it again - He has denied the petition of federal prosecutors to revoke the bail and send Bernard Madoff to jail pending his trial.

That means the greatest thief and con artist of all time remains free in his NYC penthouse, with the only stipulation is that he must wear an electronic ankle bracelet. Poor thing, I hope he doesn't develop sores around his ankle!

As for the judge, where are the NYC muggers when we need them? Such an attack would be too kind for this corrupt judge.

Madoff - Still Free after 29 Days!

2009-01-09T10:46:00.000-05:00

January 9, 2009 - 29 days ago, Bernard Madoff, one of the greatest "white collar" criminals of all time, was arrested and charged with conducting the largest Ponzi schemes in history, one involving an estimated $50 BILLION DOLLARS!

Amazingly, the judge has allowed Madoff to remain free after posting a measly $10 million dollar bond. Poor guy, it must be rough wearing an electronic ankle bracelet and confined to his New York City penthouse.

I can't help but wonder who has committed the greater crime - Madoff for operating what prosecutors called a "stunning fraud" of historic proportions, OR the New York judge who saw fit to confine Madoff to his apartment, rather than send him to jail where he belongs!

Cleaning-up Your Balance Sheet

2009-01-02T11:35:00.000-05:00

The following comments are taken from a recent post to a list serv to which I subscribe. It occurred to me that there might be a wider audience for these comments and thus they are posted below.

During the course of some recent valuations I noticed a couple of things regarding balance sheets that bothered me.

In one situation the owner (either in the beginning or in recent years) had loaned the company money, and thus this loan now shows up as a long-term liability. That's not unusual or bad by itself - It happens all the time. However, the problems with this loan, as I view it, were really two-fold:

First, it decreases the net worth of the company on your balance sheet and it is very, very unlikely that it will be an item that will ever be recaptured during the future sale of the business. These types of loans are rarely ever cleaned off the balance sheet, and even CPAs and accountants rarely even mention these types of loans. Remember, if and when you ever sell the typical buyer is not going to be willing to pay off debts you should have taken care off long before the settlement.
The second concern is an issue of taxation and that is: Given the choice of paying yourself a paycheck of say $5,000 or paying down the company's $5,000 note that it owes you the latter would be preferable since it is not subject to FICA and other payroll taxes, since it is the repayment of a loan. Not only do you save in taxes but your books are cleaned up as well. Of course, ideally, you would like to do both (take a paycheck and have the company pay off its note to you) but if you could only do one or the other (unless you have unlimited cash of course) paying off a company note to you would be the better move, at least in my opinion.

By the way, during the course of one recent valuation, even after deducting some of these personal loans made by the owner to his company, the company balance sheet still showed a negative net worth of $(75,000). Despite dismal numbers both on his balance sheet and and his profit and loss statements, the owner was adamant about not even wanting to discuss any offers under $100,000! Amazing. This owner is living in a dreamworld. For the past 5-6 years, this owner has been paying himself a salary equivalent to approximately $14-17 per hour and after that the company showed virtually no profit whatsoever. Simply put, no profit (excess earnings) no value. It is almost as simple as that!

Did not reach 300lb Goal

2008-12-23T12:38:00.000-05:00

For those who were wondering whether I made my Christmas goal of benchpressing 300lbs the answer is "no." I got close, but then was forced to go on a diet by my wife just prior to a Thanksgiving Week cruise. I lost 13 lbs. on some stupid diet and have kept most of it off (down to 188), but with that loss I lost a bit of strength as well.... On a good day I can press 280-285 but not the 300lbs I had hoped. Well, assuming I live, I have the next 4-6 months to reach that goal. The nice thing about weightlifting is that there is always a new goal to set and reach.

Many Owners Violate Wage & Hour Regs.

2008-12-22T10:19:00.000-05:00

I've just finished a column for the Feb. 2009 issue of Quick Printing magazine titled, "Don't Let 'Salaried' Employees Read this Column." Much of the column was prompted by a recent consulting visit as well as discussions of this topic on Printowners, a list serv to which I subscribe. You can find out more about this list serv by visiting: http://www.PrintOwnersList.com.

In the briefest of summaries, the article notes that a title or pay level is not enough to avoid paying someone overtime. Simply giving these employees the title of "manager," "administrator," "production manager" or "creative professional" does not by itself allow you to avoid paying time and one-half for all hours more than 40 hours per week.

Just because you know of another business where this is done doesn't make it right or legal. There are many professions and industries that have been granted exemptions from the overtime requirements of the Fair Labor Standards Act (FLSA) but printing is not one of those industries. A careful read of the regulations is a must if you want to avoid future audits and fines. Remember, it only takes one disgruntled employee to launch a probe by a state FLSA division or department.

If you have chosen, for whatever reason, to place an employee on an annual salary and that employee occasionally works more than 40 hours per week the chances are better than 50-50 that you are required to pay them overtime. If you don't you are most likely violating the law. Once again, titles or even the pay level have little if anything to do with whether that employee is exempt or not.

There are six primary job categories under FLSA regulations that are exempt from overtime requirements. They are:

Executive Employee
Administrative Employee
Learned Professional
Creative Professional
Computer Employee
Outside Sales

At first glance, you might look at these exempt titles and conclude that you are safe, but a closer look at the requirements for each will most often uncover requirements that would dis-allow your classifying employees as exempt. Typesetters and graphic artists would rarely qualify under eithe the "creative" or the "computer" categories. Press operators who both manage and run a press themselves would rarely qualify under the regulations. Managers who also fill-in and perform many of the same tasks of those they supervise would also not be considered exempt.

For a great article on this subject visit: www.flsalaw.info/flsa_coverage_exemptions.htm