Free Excerpt From Financial Benchmark Study

Printing Association Releases
2017-18 Financial Benchmarking Study

The 2017-18 Financial Benchmarking Study, sponsored by Accuzip, is by far the most valuable, information-packed study publichsed in the printing industry, especially for firms with sales ranging between $400,000 and $3 million. It is filled with useful graphs, charts and real-world profit & loss statements (and balance sheets) depicting, among other things, the key ratios that distinguish the “profit leaders” from the “profit laggards” in this industry.

 

Click on the artwork above or click here to read the entire PDF excerpt

Because we believe so strongly in the value of this document, we have decided make available a PDF containing an excerpt from the Executive Summary for this key industry report – just to give you an idea of what it contains. Authored by industry financial expert Larry Hunt, Hunt tracks and explains the ups and downs and the successes and failures that have occurred in this industry for more than 30+ years. 

You can of course purchase the entire report by visiting the NPRC Bookstore.

10 Tips for Increasing Company Value

Analysis Reveals Huge Disparities in Company Values
Among Firms Reporting Almost Identical Sales!
By John Stewart
Printing Firm Valuation Chart

35 Valuations – Even the small portion of valuations excerpted above illustrate the huge variations in valuations for printing firms in this country. For explanations of the “headers” please visit the full chart at the end of this post. As to why the huge variances? Click here or the chart above to download a PDF of the above chart. Read further…

Rules of Thumb

In the old days, one of the most popular rules of thumb for determining what a printing business was worth or company valuations was based upon nothing more than a multiple of sales –one times annual sales was probably the most common.Sometimes that multiplier even exceeded one! The amazing thing about that rule was that it never took into account profitability or what a working owner was able to take out of the business.

Other valuation rules that are still floating around today may be a bit more logical in that they take profitability into account. Some rules rely on a multiple of excess earnings, and some modify that by adding in the value of net assets. Still other rules use a average of owner’s compensation over a period of time multiplied by a factor between 2-6.

Unfortunately, many owners don’t understand the term “excess earnings,” or give much thought to company valuations until they near retirement and suddenly realize that the business isn’t worth half what they thought it would be! Very few owners fully understand terms such as “owner’s compensation,” or “earnings multipliers” and thus have great difficulty determining the value of their own firm.

“Print Shop For Sale” Published

In 2007 Larry Hunt (a highly respected printing consultant) and I published a book titled, “Print Shop for Sale.” PSFS, a 280+ page publication, has been reprinted numerous times and at last count had sold more than 3,800 copies. At the time “Print Shop for Sale” was published it was the only book in the printing industry dedicated strictly to valuing printing firms. It continues to hold that distinction today. As noted on the cover of the book, it is intended to provide readers with, “A step-by-step guide for establishing a fair market value for your printing firm, or one you are looking to buy.”

Writing the book with Larry was a true labor of love. Neither of us imagined that it would eventually lead to numerous inquiries from printers around the country asking if we would value their firm. Naively, we assumed our $89 book would do the trick. We figured the book did a pretty good job at explaining the “Modified Excess Earnings” approach and how to use that to arrive at the value of a printing firm.

Wow, were we wrong! We began getting calls from both independents and franchises alike asking us if we would prepare a valuation for their firm. Larry decided he would prefer to retire early and play golf. I don’t play golf, but I do own an airplane which is very expensive to operate and maintain, thus I continue offering valuation services when asked. <g> (Interestingly enough, after we evacuated the plane during the last hurricane we returned to Melbourne only to discover that we had developed a crack in the engine block and we are now looking at a $37,500 cost for a re-built engine!)

When an independent or franchise owner would call about valuations one of the first things I would recommend is that they should buy the book and gather together the various forms suggested in the book and then provide answers to our valuation questionnaire. If they still had questions then they should call me.

Sometimes, you just have to do the “hard” work. There are no “rules of thumb” or shortcuts to valuing most firms.

Interestingly enough, many of the printers told me they had already bought to book but still wanted me to do the work. They wanted more than “Print Shop for Sale” had to offer.

Some owners, although telling me they had purchased the book, admitted they were not really into the “numbers” and wanted me to do the work. Some wanted a detailed valuation of their firm and were willing to pay the price. Other owners had found a business they were interested in buying but wanted my help in coming up with a “fair market” offering price.

Avoiding Valuation Pitfalls

Since that time, I have conducted more than 450 valuations and I continue to provide valuation services today. However, I am NOT trying to sell valuation services. What I would like to share with you are some general comments about valuations and why some owners are able to receive “top dollar” for their businesses, while other owners end up, even after 10-15 years of operation, with businesses with little if any value. The result, they work it to the very end and then close the doors.

For those of you who used to read my columns in Quick Printing magazine, or have read some of my recent articles posted on the National Printing Research Council website (www.printingresearch.org) you know that I tend to rant and rave sometimes just to make a point.

That’s what I am going to do with the column – Offering up some “rants” and “raves” about company valuations and what causes some to be valued extremely high, while others end up being shockingly low.

First, let me observe that in today’s world, it does strike me that many of the owners that I encounter are far more realistic than they were in the past as to what they think their business might be worth. Buyers also strike me as being better informed and more realistic as to what they are looking for and what they are willing to pay. You’re probably not going get away with the old, “Hey, this business is a goldmine and someone with some real marketing skills and who is a good sales person can easily take this business to the next level.”

Unfortunately, there is also a substantial number of owners who have worked more than half their life to build a business, only to discover that it is worth far less than they thought it was. They had put most of their eggs into one basket (the business), only to discover too late that they had been making poor decisions almost from day one – decisions that would really hurt them in the long run.

Low Valuations and Lost Friends

The sad thing is that I have actually lost a couple of friends along the way as the result of valuations that came in much lower than what they had expected, and they blamed me for the low valuations. They had been counting on a valuation of $$$ for the last few years, and then I prepare a valuation based upon the numbers they provided and I end up telling them their business was worth less than 50% of what they thought.

Another owner bragged about how much money he was able to take out under the table and thus avoid taxes. When I valued his firm, and told him we couldn’t use that “stolen cash” to value his business he was shocked!

Still another owner bragged to me about his excellent package of equipment and that he could produce 95% of all his work in house. What we discovered was that he was asset-rich and excess earnings poor. He had accumulated far more in equipment than he really needed to produce his annual sales.

Sure, the equipment was really neat, and worked extremely well, but a lot of it was only used 2-3 times a month and for the remainder of the time it sat in the corner collecting dust. Excessive amounts of hard assets, as a percent of sales, combined with low excess earnings, typically produce low company valuations. Most savvy buyers are not interested in buying all of your fancy assets, but rather what those assets can produce in terms of excess earnings!

The Worst Case of All!

Of course, the worst case of all is to put a fairly-valued firm up for sale hoping to get lots of offers only to hear dead silence. Even the best, most logical, common-sense valuation doesn’t guarantee and that that you are going to find qualified buyers in your market willing and able to pay your asking price. Bottom line, that unlike in the residential real estate market, there really isn’t much of a market in which to advertise, let alone sell printing businesses.

Special Editorial Note: Actually this entire article is an “editorial note” <g>, but I want to point out the values assigned to various businesses noted in this article are not meant to imply that these businesses sold for those prices, or in fact sold at all! Many businesses just never sell. Some are taken off the market by the business owner or broker and some never get even a nibble because of excessive value placed on the business by the owner, a business broker and yes, even a consultant. 

“Print Shop for Sale” quotes a well know author on valuations as saying:

“Despite the commonly held belief that markets are efficient, and efficient market does not exist for privately held businesses… unlike the NYSE or the NASDAQ, there is no place to buy and sell privately held businesses aside from the business brokerage community, which is small in scope. As a result, it is very difficult to determine what a privately held business is worth in the marketplace. This lack of an efficient market presents a critical need for valuation services.

This study is “worth its weight in gold,” say many of the profit leaders in the industry. Unfortunately, this may indeed be the last edition of this study to be published in the industry due to a lack of support by printers.

Let’s face it, this industry, taken as whole, is also a very mature industry. Sure, we’ve evolved in the products we produce and how we produce them, and we’ve added more services and products but it is difficult to argue against it being a mature industry. To claim that the printing industry offers up boundless opportunities for sales, growth and profits has to be taken with a grain of salt.

When it comes to valuations there is one thing you don’t want to do and that is to be caught with “your pants down” when you are are approached by a competitor asking, “Have you guys ever thought of selling your business, and if so what do you think it is worth?” That’s not the time to be scrambling around to come up with some value.

To be blunt, valuing your own firm ought to be done every couple of years, just like to update your statements of personal net worth – Of course you do that, don’t you? If the value of your firm has continued to grow over the years then congratulations! If it hasn’t, then do something about it. See my list of “Key Take-aways” near the end of this article.

35 Randomly Selected Printing Firms

Recently I was looking for a specific chart I prepared a few years listing and comparing company valuations but for the life of me I could not find it. So I went searching out some of hundreds of valuations I have conducted in the last 7-10 years and started opening up one folder after another, retrieving basic information from each valuation.

I extracted data for 35 firms. I could have easily extracted 50 or even 100! However, I know from experience that once I passed the 25 count or so, that the average and median data I was searching for would change little if any.

I assigned a fictional name to each company folder I opened, and then retrieved the following items:
       • Annual Sales
       • Calculated Excess Earnings
       • Value of Net Assets* (sold)
       • Excess Earnings Multiplier used in the valuation
       • Estimated Valuation of Firm

*NET ASSETS, as defined in the accompanying charts, is the true, market value of the essential assets (equipment, furniture and fixtures) transferred and sold to the buyer. This value is not necessarily “book” value, but rather the value that a savvy buyer would pay if he or she had to go out on the street and replace the equipment used to produce the sales in question.  As a general observation, many owners want to assign a much higher value on their equipment package than would be warranted in the real-world marketplace!

For purposes of comparison and sorting, I also calculated the percent of net assets to annual sales as well as the value of the firm expressed as a percent of annual sales. Below is one of four charts I prepared. It illustrates, without sorting, the first 17 firms for which I recorded data. Note that we eliminated two “outlier” firms (#4 and #17) – One was worth 110% its annual sales (certainly possible but still a clear “outlier”) and one firm that actually had a negative value – that scenario is also quite possible, but it too was an outlier that would have otherwise distorted our average.

SPECIAL CAUTION: Be advised that the above company names are totally fictional and have no relationship whatsoever to firms that might coincidentally have the same name. You don’t know how hard it is to actually come up with a fictional name without a real firm name coming to mind.

Of the 35 companies for which we retrieved valuation data, the smallest firm we uncovered (Instant Copy) reported annual sales of $230,256 and was eventually valued at $114,905, or 49.9% of its annual sales.

The largest firm in our selection of 35 firms (Signature Offset) reported $4,199,105 in sales, and it was ultimately valued at $931,116, or 22.4% of its annual sales.

All Firms Ranked – Although the above chart reflects the remaining 18 firms we analyzed, we have included at the end of this article a single table ranking the above firm in terms of calculated value to annual sales.

As you examine the two tables above, you can’t help but notice the range of valuations based upon annual sales. Some firms are valued extremely low at 3-29% of annual sales, while other firms, those near the top, are valued at 52-75% (and some even higher) of annual sales.

Each of the valuations were subjected to the same valuation tests and formulas. You would like to think that the highest valued firms were those with the highest ratio of “Excess Earnings” to “value” but that is not always the case. The same expectation might be said for “Net Assets to Value” but that too cannot be said. What we can say is there are so many variables when it comes to preparing a valuation that it pretty much precludes the ability to offer up a neat “rule of thumb” that you could quickly apply to just two or three ratios.

Below is the entire list of 35 firms sorted by their value as a percent of annual sales:

Click image to download PDF of this chart

Partial Definitions of headers:
   Annual Sales – Self explantory
   Excess Earnings – Total owner’s compensation less “fair market salary” for working owner. Explained in detail in Print Shop for Sale.
   Net Assets – Hard assets (“real world” street market value of equipment, furniture & leasehold improvements) transferred free & clear at time of sales. Does    not include cash, AR, etc. as those normally are retained by seller.)
   % Of Assets to Total Sales – A comparative ratio of Net Assets to Sales.
   Earnings Multiplier – Multiplier and score arrived when sellers complete valuation questionnaire as explained in Print Shop for Sale. Questionnaire is also available for inspection at our Valuation Services Page on our companion site.
   Estimated Valuation – This is the value (we sometimes determine a range rather than a specific figure) that we arrived at when applying and using the Modified Excess Earnings Approach.
   Value as a Percent of Sales – We divided estimated value by annual sales to arrive at this ratio.

Key Take-Aways for Increasing Value

While I cannot offer up hard “rules of thumb,” I can still rant a bit and offer up suggestions for improving the overall profitability of your firm and thus its value. Some are common sense, others are not as obvious:

1. Monthly Financial Statements – Generally speaking, the most troubled firms I have encountered over the years, including many of those with a low valuation as a percent of sales, are those that either don’t receive monthly financial statements, or if they do they don’t read them! Some owners just don’t seem to care too much about the “numbers” and it shows when it comes time to value their firm. It’s probably preaching the the choir, but my guess is a vast majority of the most troubled firms in this industry have never, never examined an Industry Financial Benchmarking Study  and that is a tragedy. (This link directs you to our bookstore where this key study can be purchased)  Hell, Larry Hunt’s Executive Summary is a treasure trove of suggestions for becoming a profit leader! Do I feel sorry for these folks? Not a bit. That’s a rant!

2. Properly Formatted Financial Statements – Of Course, you can get financial statements every month, but if they are not formatted properly you’re not going to be able to find the key info that you need to manage the business. At the very least, your financial statements need to breakout expenses into three basic categories – Total Payroll, Cost of Goods and Overhead Expenses. When it comes to payroll, you also need to be able to quickly distinguish payroll costs and benefits paid to a single owner as compared to what is paid for all other employees. This is critical info required for a valuation. P.S. If both husband and wife work the business, one of those salaries needs to be shifted to general payroll. By the way, it is up to you and not your CPA or bookkeeper to determine how your P&L should be formatted.

3. A Huge Mistake Made by Many – Far too many owners allow either their CPA or their internal bookkeeper to provide raw dollar figures without providing them with an adjacent column reflecting the the actual ratios or percent of annual sales that each cost item or category represents – These are critical ratios you need to commit to memory and if someone isn’t giving these ratios to you then fire them! These ratios, whether good or bad, can be used to compare to the ratios for profit leaders and laggards found in industry benchmarking studies.

4. Excess Earnings vs. Owner’s Compensation – “For a business to have any appreciable value to a potential buyer, it must produce a cash flow above and beyond what would be required to pay a fair market salary to the new owner or manager. It is this ‘excess cash flow’ or ‘excess earnings’ that is used to purchase the business from the former owner.” (Excerpt from Print Shop for Sale.) If you’re unfamiliar with this principle or don’t understand it you need to hit the books! If you think someone is going to buy your business and not take out a reasonable salary while he/she uses the profits of the business to pay you off you are sadly mistaken. That new buyer is entitled to pay himself/herself a fair market salary and still have enough money left over to pay you! Where is that money?

5. Truly Understanding Owner’s Compensation – Most owners don’t fully understand what is meant by the term “Owner’s Compensation.” “Owner’s Compensation” is defined as, “all the money that is left over in the business after covering all expenses of the business (cost of goods, payroll and overhead expenses) but before paying the primary working owner a salary or giving that owner any fringe benefits.” “Owner’s Compensation” DOES NOT include combined salaries or benefits paid to a spouse or partner. You should be able to calculate your owner’s compensation quickly and without trying to play games with the numbers.

6. Blood Sweat and Tears Don’t Count – Just because you and your spouse or partner have worked the business very hard for so many years plays little if any role in its value to others. In “Print Shop for Sale” we discuss the “Endowment Principle” – “The endowment principle suggests that an owner of an object tends to attribute a higher value to that object because he owns it. Consequently, the owner of a business may think that the business has a higher value than it actually does, merely because he or she started it, nurtured it, etc.” That principle is often the cause for the vast differences in valuations prepared by sellers as opposed to those prepared by potential buyers.

7. Whatever You Do, Clean-Up Your Balance Sheets – In 90% or more of sales involving small businesses, the seller typically keeps or retains all cash and AR and assumes responsibility for paying off all short and long-term accounts payable, including notes, loans, etc. (Operating Leases remain on the books as an expense) As for all those special liabilities or notes payable to owners or relatives forget about them! No buyer is going to pay-off those types of liabilities. If the company owes you money you better take care of it now because it won’t happen at the time of sale. The same is true for fictional entries like “amortization” or trade secrets or other ill-defined items listed as assets.

8. Increasing Value by Decreasing Costs – You may think you are running a tight ship. Chances are you’re not, certainly not when compared to the real “profit leaders” in this industry. For every $10,000 in annual expenses that can be trimmed means that the value of your business can increase by anywhere between $25,000 and $60,000!

9. Inability to Make Hard Choices – Sometimes, owners with the best of intentions fail to make decisions that would almost immediately enhance the value of their business. Terminating bad apples or at least apples that are starting to rot. Like it or not, almost every company with six or more employees has one of these employees. Failure to act on the obvious ultimately leads to lower excess earnings and lower valuations. It is also possible that you have a great team of long-term, very loyal employees, all of who are highly valued AND YET it is also quite possible that you may have one more employee than you really need.  If you terminate just one $40,000 employee that could easily increase the value of your firm by $120,000 to $200,000! But you can’t do that at the very end and expect to benefit from that increased value!

10. Spending Too Much Time on Social Networks – While I rarely go out in the field these days, I can tell you that many owners I know spend an enormous amount of time on social networks. In many respects, I believe Facebook, Twitter, LinkedIn as well as various listservs can be tremendous time-wasters, preventing even the best-intentioned owners from really pursuing what needs to be done. What’s fun to do, is not the same as what needs to be done!

Thanks for Reading

Tired of my rants? I understand if you nod “yes.” If you spotted a couple of grammatical mistakes or missing words I am constantly reproofing so if you notice a mistake chances are good it will be corrected soon. On the other hand, if you find something wrong or unclear let me know ASAP and I will correct it. For those that finished this article I want to say thanks as well. I welcome your comments, although I can’t promise that I will be able to get back to all of them. You can email me at johnstewart@printingresearch.org

SPECIAL NOTE – Last week, we launched a special 22% Discount Sale on all NPRC publications. The offer was originally set to expire Sept. 26th, but that offer has now been extended until Sept. 29th! You must use “Irma2017” for your coupon code. “Print Shop For Sale” is excluded from this special offer.

So, You Want to Sell Your Business?

Factors Impacting the Value of Your Business

So, You’re Thinking of Selling Your Business?
By John Stewart, Executive Director, NPRC

“Hi John, I think it’s time for a valuation. Lindsey and I are almost 60 and we’re giving some serious to selling the business and retiring, so what’s the first step we need to take to get a valuation done?”

How do I respond when someone calls me with a question like that?

Well, I start off by asking a bunch of my own questions. What are their current sales, and what do they think their business is worth. What are they going to do after they sell the business? How much is their net worth, and what percent of their total net worth is represented by the value of their business? What happens to their plans if their business simply doesn’t sell?

Sure, they may be calling me about a valuation, but virtually every single caller already has some preconceived notion as to what their business is worth.

Is the Business Value Inflated?

One of the early and most important questions I ask is, “what happens if it turns out your business is worth far less than what you think it is. What will you do then? Are you prepared emotionally and physically to continue operating it like you are today?” Some folks who call do have the time, the patience and the maturity to rationally answer those types of questions. Others are less fortunate and they are looking for instant solutions (selling) to problems that have taken years to develop.

One of the more challenging questions I raise with folks is, “What happens if you throw a party and no one shows up?” Unless you have one or two prospects already lined up and waiting to buy your business, what happens when you establish a fair market price for your business, put it on the marketplace and you are greeted with deafening silence?

Making More Money by Staying!

Many times, I end up suggesting to callers that they need to go back to the drawing board and rethink what they want to do, reminding them that they will never make as much money selling the business as they will from continuing to run the business on a day-to-day basis.

Even in cases where the callers are dead-set on selling their business sooner rather than later, postponing the sale by even a couple of years and concentrating their efforts on specific steps designed to increase the value of the business may very well be the best course of action.

Yes, that may be very discouraging for some folks to hear, especially folks who are biting at the bullet to retire now, but postponing the sale and working the business for a few more years may be a far more realistic option than what they have facing them now. There are many, many steps that owners can take in a relatively short period of time (12-24 months) to significantly increase the value of their business. We’re not suggesting these steps will be easy, but then again what is?

Business Valuations – Two Observations

I’ve been a consultant in the printing industry for more than 35 years, and I have also conducted more that 400+ valuations in the last ten years, and I feel comfortable in offering the following two, broad observations valuations conducted in our industry:

• Limited Market – First, unless you already have a serious, qualified prospect waiting in the wings to buy your business, the chances are better than 50-50 that no matter how fairly priced your business might be, you may never find a qualified buyer willing and able to buy your business, certainly not at the price you think it is worth, and certainly not for all cash, which is what many if not most sellers expect.

• Unrealistic Expectations – Second, most owners think their business is worth far more than most valuations would suggest, and they are sadly deceiving themselves to think they are going to find a buyer. PERIOD! Where or how some owners come up with their business valuations is beyond me. Anyone who suggests that a business is worth some multiple of annual sales needs to have his or head examined! Too many folks conflate the amount of money they collectively withdraw from the business on an annual basis with profitability or excess earnings. They are not the same.

Available only as a hard copy. Visit the NPRC website for details.

In 2007 I co-authored, along with my good friend and industry expert Larry Hunt, what is now considered a landmark industry publication titled, “Print Shop for Sale.” This 300+ page book has sold more than 4,000 copies, and remains as the only publication of its kind in the printing industry, offering “A step-by-step guide for establishing a fair market value for your printing firm, or one you are looking to buy.”

Valuation Lessons Learned

Since its publication, I have conducted well more than 400+ valuations. I have also been called upon to provide “expert testimony” at various legal proceedings where I have been asked to address various valuation methods as well as industry profitability ratios. Print Shop for Sale is available in the NPRC Bookstore.

I have encountered virtually every possible valuation scenario, ranging from nasty divorces where no one wins, to couples who had planned for the last 20 years to somehow retire at the magic age of 60 only to reach that age, and have nothing whatsoever to fall back on – their business having little if any value to anyone other than themselves, with the only source of additional income or benefits being what they will received from Social Security and Medicare.

As I alluded to earlier, the selling process is more likely to take a year or more, rather than months, and even then, there is no guarantee whatsoever that you will find a qualified buyer who is willing and able to pay your asking price, or anything close to that.

Remember too, that in at least a majority of the selling scenarios that occur in the real world, you are typically going to be asked to provide financing for the bulk of the selling price. If you think you’re going to show up at settlement, “Sign the papers and then walk away with a big check” you are mistaken. Consequently, the monthly payments you will come to depend upon will be closely tied to the success of the new owner and his or her ability to achieve all the promises that you made during the selling process.

“Even though sales have been somewhat flat the past four years, this business really has great potential, and with the right person at the top, it can reach the next level in terms of sales and profits.”

During the early stages of establishing a business valuation, owners who want to sell their business will often come up with a variation of the following: “Barbara and I have worked very hard the last 20+ years and we’ve made good money, and we’ve built a solid business, but we are getting burned out and we want to move on. Even though sales have been somewhat flat the past four years, this business really has great potential, and with the right person at the top, it can reach the next level in terms of sales and profits. Heck a new owner could easily double our sales if they got out there and properly marketed the business.”

Valuing a Business Based Upon Potential?

If you think you are going to sell your business based upon its potential you are sadly misleading yourself. In the simplest of terms, your business is worth nothing more and nothing less than (1) the current net, street value of your equipment and (2) the ability of the business to pay a new owner a “fair market salary” AND produce or generate enough excess earnings that allows the new owner to make payments to you the seller!

The bottom line in terms of selling your business is you are either a “leader” or a “Laggard” in terms of profitability and sales per employee. You either have it or you don’t. If you’re trying to make a “silk purse out of a sow’s ear” then good luck.

Just because you and Brenda worked 85-hour weeks and worked for less than minimum wage doesn’t mean a new owner should, certainly not if your business is half as profitable as you say it is.

Plus, if the business has potential to grow then you should have grown it. If the business has potential to be more profitable then you should have been the one to make it more profitable. If a new owner takes the bull by the horns and increases sales and profits as a result of their talents then the credit goes to them, and not you!

“If the business has potential to grow then you should have grown it. If the business has potential to be more profitable then you should have been the one to make it more profitable. If a new owner takes the bull by the horns and increases sales and profits as a result of their talents then the credit goes to them, and not you!”

If a business is unable to pay a new owner a working salary as well as generate enough “excess earnings” to pay the seller each month then it most likely is worth nothing more than the “street” value of the furniture and equipment used to produce those sales. We’re not talking net assets as found on the balance sheet, but rather the value that this equipment represents if a savvy business owner had to go out on the used equipment market and replace each key piece of equipment required or used to produce your current sales.

By the way, one of the biggest mistakes sellers can make is to load up their businesses with new equipment, leased or financed, in the last two or three years just prior to putting the business on the market for sale!

Regrettably, as many owners soon discover, there is very little interest in businesses producing mediocre sales and mediocre profits. Instead of being able to sell their business at a magical ratio of 60-70% of annual sales, they find they are unable to sell the business as an on-going entity, and instead end up closing their doors, selling off their accounts receivable, and then selling off key pieces of equipment one piece at a time, receiving just pennies on the dollar!

Owners ignore data like the above at their own peril. Many owners spend years in this industry never realizing how poorly they are performing as compared to their peers.

Five Factors Worth Considering

It would be easy enough for us to pull out the past dozen or so valuations and highlight what we found, but suffice it to say the five specific commentaries offered below would be near the top of just about any list I prepared.

(1) Confusing Salaries vs. Owner’s Compensation – Husbands and wives, or even brothers and sisters working as teams running and operating a business, often mistake the amount of money they collectively withdraw from the business as being the same as profits or owner’s compensation. They are not. Only the salary and benefits taken out by a single individual can be considered as part of the owner’s compensation calculation. So, just because Tony and his wife Carol collectively take out $75,000 on a business doing $750,000 in annual sales, this does not mean they are taking out 10% or $75,000 in profits. Far from that! Assuming a new owner would replace Tony as the new working owner, he would also have to go out on the market and replace Tony’s wife as well at a fair market, competitive salary. If that means spending $35,000 to replace her, then the unadjusted excess earnings for the company would now be $40,000, or 5.3% of sales.

(2) Failure to Achieve Top SPE levels – We can report with absolute confidence that firms falling in the top 25% of our industry report average “sales per employee” ratios of almost $160,000. We also know that those in the bottom 25% of our industry continue to struggle with reported SPEs of $125,000 or below! How owners (assuming they even track info like this) can sleep at night knowing their company’s SPE is so much lower than others in the industry is mind boggling, especially when it can be so readily improved.

(3) Ignoring Key Industry Statistics – The printing industry is almost unique in some aspects, especially its history of collecting, tracking and publishing key financial ratios. Owners who make excuses for not knowing the fundamental financial ratios that define this industry have no one to blame but themselves. To be blunt, if you can’t instantly put your hands on what those key financial ratios being reported by the top 25% of this industry then shame on you.

How on earth does a smart business person run a business without knowing the key benchmarks being achieved by competitors in their industry?

The 2017-18 Financial Benchmarking Study, one of many studies published by NPRC (and available in its bookstore) is packed with ratios related to what the winners in this industry report for benchmarks such as sales per square foot, current ratios, owner’s compensation, cost of goods and one of the most important ratios of all – employee payroll! It is not surprising that firms that lack this type of data tend to be under-performers.

(4) Rationalizing Key Ratios – It is one thing not to be aware of key ratios, it is a far different thing to actually have access to these key ratios, especially ratios reported by the very top performers in the industry, and yet to conclude that somehow they don’t apply to your firm. Rationalizing that key performance ratios don’t apply to your firm or that your company or market is different from all the rest is simply a recipe for disaster – It’s also a reason why no one in their sane mind will pay you what you think your business is worth. If only owners would stop rationalizing and act upon the wealth of information available to them they would end up making their lives so much much better, at least in the long run!

(5) The Enemy in the Mirror – Like it or not the biggest culprit preventing many owners from achieving higher levels of success (and higher values for their businesses) is the man or woman staring back at them in the mirror first thing in the morning. That individual typically exudes negative vibes. They are filled with excuses. They talk a good game, and say they are willing to change, but when push comes to shove they will fight the consultant and ignore advice from even the most qualified, most trusted advisers they can find. Sometimes that trusted adviser is a spouse or partner, but even then they are ignored. Many of these owners simply fail to push themselves or the folks around them. They make little effort to change, and remind one of the old expression, “It’s hard to teach an old dog new tricks.”

Ok, that’s enough negative rants for the day! <g>

Recovering from Hip Surgery

I just had my left hip replaced on Aug. 21, 2017 and I am very impatient to get back to my old self. If you sense from the column or comments above that I sound a bit “irritable” you are correct. Don’t look for a retraction! <g>

While I am pleased with my progress, it just never seems fast enough. The healing process pretty much is following what I endured five years ago when I had the other hip replaced. My hip was operated on Monday mid-day, and I was up on a walker walking around the ward five hours later.

I was discharged the next afternoon. By Thursday, I had given up using the walker, and I was walking up and downstairs as soon as I returned home. Each day it has been getting a bit easier to endure. Anyway, as I kept proofing and reproofing the above I kept stumbling upon one “negative” sound comment after another. I would revise or delete one and yet another one would pop up a couple of paragraphs later.

Nothing makes me angrier, however, to know that our industry has so many resources available to help troubled firms and yet so many just ignore them and think they “know better.” It is really a tragedy to find myself talking to owners who say they are now ready to retire but when I end up looking at their financial statements I discover one mistake after another than could have been avoided had they availed themselves of some of the many outstanding reports available in this industry.

Oh well, I hope you enjoy the column. Don’t hesitate to email me with any comments or questions you might have.

 

NPRC Releases Hourly Rates Report

The 2017 Hourly Rates & Mark-up Practices Report, a 58-page special report published by NPRC, will be available for purchase on June 28, 2017. This brand-new publication, based upon a recent survey conducted by NPRC in early June, attracted more than 240 printing firms.

The new report offers a special look at the popularity of various computerized estimating systems, and then quickly moves to various budgeted hourly rates used in graphic arts departments as well as hand labor rates for a variety of bindery and other back-shop tasks. The report also reports on mark-up rates used for handling sub-contracted services and products as well as rates used to mark-up paper used in offset printing. 

SPECIAL ALERT – If you believe you participated in this survey but have not received the PDF report then it is due to it either going into either your trash or spam folders, OR you accidentally deleted the email we sent you. It is also possible that you never received it because the email address from which it was sent (membership@printingresearch.org) was not “whitelisted” as we requested during the release of this survey. The PDF of this report was sent to 245 email addresses on both June 26th and then again on June 27. The subject line was, “Your Complimentary Copy of the Hourly Rates Report.” Please thoroughly check all email folders prior to contacting us.

Table of Contents… Click here to view the Table of Contents for this new report.

Table of Contents

Retail pricing for this new study is $49.95 (PDF) and $56.95 (Printed);

NPRC member pricing is $24.95 (PDF) and $31.95 (Printed).

Order your copy via the NPRC Bookstore.

Digital Pricing Study – Table of Contents

Table of Contents for the 2016-2017
Printing Industry
Digital Printing Pricing Study:

Preface…………………………………………………………………………………… 7
Executive Summary……………………………………………………………………… 9
Terminology & Definitions …………………………………………………………… 19

Section I: Profile of Respondents and Pricing Data……………………………….. 21

Part 1: Basic Company Information………………………………………………… 27
Basic Company Information
2014 Gross Sales of all Respondents……………………………………………. 27
2015 Gross Sales of all Respondents……………………………………………. 27
2016 Gross Sales (projected) of all Respondents……………………………….. 27
Projected Increase/Decrease 2015-2016 of all Respondents…………………….. 27
Percent Single vs. Multiple Location……………………………………………. 27
Age of Firm……………………………………………………………………… 27
Number of Employees…………………………………………………………… 27
Distribution of Respondent Firms by Region…………………………………… 27
Distribution of Respondents by Estimated Market Size…………………………. 28
Sales Per Square Foot…………………………………………………………… 28
Age of Owner…………………………………………………………………… 28
Sales Per Employee……………………………………………………………… 28
Distribution of Respondents by Annual Sales…………………………………… 28

Part 2: Pre-Press, Graphic Services & Industry Trends…………………………… 31
Minimum Charges …………………………………………………………………. 33
File Handling Fees………………………………………………………………….. 33
Hourly Graphics Charge……………………………………………………………. 33
Jobs Provided by Whom?………………………………………………………….. 34
Percent of Color Digital Jobs Finished On-line…………………………………….. 34
Percent of B&W Digital Jobs Finished On-line…………………………………….. 34
Variable Data Color Printers……………………………………………………….. 35
Variable Data B&W Printers……………………………………………………….. 35
Variable Data Minimum and Hourly Fees………………………………………….. 35

Part 3: Pricing for Digital Color Printing…………………………………………… 37
Flat Sheets In Color:
100# Coated Text……………………………………………………………….. 39
100# Coated Cover ……………………………………………………………… 40
Variable Data Pricing……………………………………………………………….. 41
Carbonless Forms:
2-Part Carbonless……………………………………………………………….. 42
3-Part Carbonless……………………………………………………………….. 43
Color Click Charges Only………………………………………………………….. 44
General Stock Mark-Up Practices………………………………………………….. 45
16-Page Self-Cover Newsletters……………………………………………………. 46
32-Page Self-Cover Newsletters……………………………………………………. 47
16-Page Booklets with 4/4 Cover…………………………………………………… 49
32-Page Booklets with 4/4 Cover…………………………………………………… 50
Finishing Methods Used for 16 & 32-Page Booklets with Cover………………….. 51
Digitally Printed Envelopes…………………………………………………………. 52
Business Cards……………………………………………………………………… 54

PART 4: Pricing for Digital B&W Printing………………………………………… 57
60# White Offset, 8.5×11…………………………………………………………… 59
60# White Offset, 11×17……………………………………………………………. 60
80# White Cover, 8.5×11…………………………………………………………… 61
80# White Cover, 11×17……………………………………………………………. 62
32-Page Booklets…………………………………………………………………… 63
Carbonless Forms:
2-Part Carbonless……………………………………………………………….. 64
3-Part Carbonless……………………………………………………………….. 65
B&W Click Charges Only………………………………………………………….. 66

PART 5: General Discounting Practices……………………………………………. 67
Special Discounts Offered………………………………………………………….. 69

Section II: Usage & Ratings for: Digital Color Envelope Printers, Primary and
Secondary Digital Color Printers, Primary Digital B&W Printers 71

Usage & Ratings for: Digital Color Envelope Printers
Ratings of Dedicated Inkjet Envelope Printers………………………………….. 74
Ratings of Dedicated Digital Envelope Printers…………………………………. 74
Ratings of Digital Printers with Envelope Capabilities………………………….. 74
Envelope Printers – Ratings of Devices & Service………………………………. 75
Usage & Ratings for: Primary and Secondary Digital Color Printers
Color Printer/Copier Vendors by Placement…………………………………….. 77
Average & Median Copies/Month by Color Printer Vendor……………………. 78
Average & Median Click Charges by Color Printer Vendor……………………. 78
Average & Median Vendor Ratings for Color Printers…………………………. 79
Average & Median Service Ratings for Color Printer Vendor………………….. 79
Device & Service Ratings by Printer Vendor & Model Number ……………….. 80
How was Primary Color Printer Financed?……………………………………… 81
How was Secondary Color Printer Financed?…………………………………… 81
Usage & Ratings for: Primary Digital B&W Printer
B&W Printer Placements………………………………………………………… 83
Average & Median B&W Copies/Month by Vendor……………………………. 84
Average & Median B&W Click Charges by Vendor……………………………. 84
Average & Median B&W Device Ratings by Vendor…………………………… 85
Average & Median B&W Service Ratings by Vendor………………………….. 85
Average Device & Service Ratings by Printer
Vendor and Model #………………………………………………………… 86

Section III: Industry Snapshot Comparisons……………………………………… 87

2016 Industry Snapshots…………………………………………………………… 89

Market Baskets Based Upon Geographic Regions
Northeast………………………………………………………………………… 92
Southeast………………………………………………………………………… 93
Central…………………………………………………………………………… 94
West…………………………………………………………………………….. 95
Canada…………………………………………………………………………… 96

Market Baskets by Population Density
Rural…………………………………………………………………………….. 97
Small…………………………………………………………………………….. 98
Medium…………………………………………………………………………. 99
Large…………………………………………………………………………… 100
Major…………………………………………………………………………… 101

Market Baskets by Annual Sales
Sales $200,000 to $499,999……………………………………………………. 102
Sales $500,000 to $799,999……………………………………………………. 103
Sales $800,000 to $1,499,999…………………………………………………. 104
Sales $1,500,000 to $4,999,999……………………………………………….. 105

Industry Market Basket Analyses, Independents vs. Franchisees
Independents…………………………………………………………………… 106
Franchise………………………………………………………………………. 107

Market Baskets by Sales Per Employee
SPE <= $99,999……………………………………………………………….. 108
SPE $100,000 to $124,999…………………………………………………….. 109
SPE >=125,000 to $139,999…………………………………………………… 110
SPE >=140,000………………………………………………………………… 111

New Net Worth Survey Published!

The National Printing Research Council (NPRC) has released its latest industry survey providing a detailed analysis of the personal net worth of printers. The report was mailed 1st Class and or distributed via email to more than 120 participating firms. The report is now available for sale (hard copies only) in the NPRC Bookstore.

“Successes, regrets and advice section was priceless. I have followed many of those suggestions over the years and it has paid off.”
John Byrd, Bryd Printing Co., Norcross, GA

“I have been in the printing business for over 36 years and always wondered how I was doing compared to other print shops. With this Net Worth Study, now I know. No more guessing.” 
Dan Tiedt Sr., PIP Marketing/Signs/Print,Iowa City, Iowa

Click here to review additional testimonials provided by fellow printers. Read what they have to say about the value of this just-released report.

Retail Price… $225    
NPRC Member Price… $112.50
At the present time, this report is only available as a hard copy. No PDFs.

In the meantime, NPRC has released some preliminary statistics uncovered in the survey:

  • 24% of survey participants report a net worth between $501,000 and $1 million.
  • Average net worth of all participants is $2.2 million
  • Average 2016 sales of participants is $1.5 million
  • Approximately 62% of all owners surveyed indicated they owned their own building. It’s even higher among those with the highest net worth.
  • Estimated average value of building (if owned) is $709,000.
  • 28% of owners indicate they also own other commercial real estate.
  • Approximately 37%  of those surveyed indicated they owned other “non-commercial” real estate such as second homes, vacation cottages, etc.

The National Printing Research Council is dedicated to publishing hard-hitting, fact-based research studies and surveys that directly benefit its members. We employ a full-time executive director with extensive knowledge of the industry, and we are available 24/7 to answer questions about pricing, profitability, wages, key financial ratios, and valuation methods. And best yet, we offer those services and more for low annual dues of ONLY $240!

A special new-member bonus! Printers who join NPRC between now and March 16, 2017 will receive a FREE copy of the above-mentioned confidential report on personal net worth. This is a “first-of-its-kind” report and is sure to spark a lot of discussion in the printing industry. 

This represents data representing the net worth of the average American Household in 2013 (latest available). As you can see, as the owner of a small, closely held business the odds are in your favor of far exceeding the average net worth of most Americans.

More than 120 owners, with sales ranging from $200,000 to $7.5 million, shared highly personal data about their personal net worth and told us where and how this wealth was acquired. This report, which will retail for $295.00, is expected to be released no later than Jan. 31, 2017. No other industry trade organization gathers, analyzes and provides this type of in-depth information.

Allegra Member Praises New Study

2016-17-nprc-wage-benefit-backup_6244_image015This is what an Allegra franchisee had to say about our latest industry Wage & Benefits Study… “I like the analysis options based not only on regions, population, and size, but also on profitability. I also liked the sales representative breakout. Good work and thank you.”
Jim Elder, Allegra St Louis, St. Louis, MO

For additional information, visit the NPRC bookstore. This just released study retails for $179; NPRC members can purchase the study for only $89.50, a 50% discount off retail.

Improving SPE Critical to Profits

According to new research data recently gathered by NPRC, the average SPE in the printing industry has now reached almost $140,000. Put another way, if your SPE is less than $140,000 your firm would now fall into the bottom half of the industry when compared to your peers, according to findings in the soon-to-be-released 20176-2018 Quick Printing Industry Wage & Benefits Study.

Highlighting the direct relationship between SPE and profitability, NPRC sorted the data gathered from our latest Wage & Benefits Study and found that firms reporting the highest profits (20% or higher) reported average sales per employee of $152,000, while firms reporting profitability of less than 6% reported average SPE of $104,000, or an SPE 31% lower than those at the top!

2016-17-nprc-wage-benefit-backup_6244_image017The direct relationship between SPE and Profitability “There is little doubt in my mind that there is and always has been a direct relationship between SPE and profitability in this industry. Without high SPEs it is almost impossible to achieve high levels of profitability,” notes John Stewart, NPRC Executive Director. “Owners need to quit rationalizing that they can somehow increase productivity while living with a below average SPE.” (Read more about this relationship and how you can quickly improve your SPE in upcoming articles to be posted on this NPRC website.)

NPRC is putting finishing touches on its latest Wage & Benefits Study where in you can find more detail on the findings noted above. The new research study is based upon responses from more than 180 participants and is packed with wage and salary information covering 22 of the most common positions in our industry.

Check back soon for a more detailed analysis on SPE and how you can improve it in 60 days or less!

 

Digital Pricing Study Receives Praise

Testimonials continue to pour in on this just-released study

“These studies are the best source of quality
industry information available.”

 “Being located far removed from a larger city containing support services for the printing industry, our company is starved for readily available local industry related resources and information.  Over the years we have found studies by John Stewart to be a welcomed, valuable resources to help us operate our business profitably.  His latest study the ‘2016-2017 Printing Industry Digital Printing Pricing Study’ has once again proven to be an extremely useful, comprehensive study providing in depth knowledge of industry pricing for digitally produced printing.  The content of this thought provoking study is a requirement for any printing company, large or small, with a goal of producing digital work profitably.”

Skip Novakovich
Esprit Graphic Communications
Kennewick, WA

“The Digital Printing Pricing Survey is the most valuable yet. The pricing info helped us identify irregularities, bringing some prices up to increase profits, and identify high prices that were likely resulting in lost business. The equipment ratings were most valuable as we prepared our transition to all digital and new equipment decisions. Your recent report on the shift to digital was instrumental in our decision to make the shift… Your information has helped us transform into an efficient, profit making machine.”

Greg Batchelor
McCabe’s Printing Group
Fairfax, VA

“I find the study very helpful. I have been too low in some areas and too high in others. It is a great study. Also learned from this group about the way to hire a shopper which was also very helpful.” 

Peggy Hoobery 
Burdine Printing 
Arroyo Grande, CA 

“The information in the 2016 Digital pricing study helps us a great deal. Most pricing is regional so we take that in stride. But is also shares new ideas and maybe services we can charge for that we left on the table. Each year we learn new items to increase profitability and give better service to our clients.”

David Adams
Quality Printing Services
Petaluma, CA 

“Hi John,
I have participated in every one of your studies for more than 15 years. For the first 20 years in business I had to guess what the rest of the industry was doing. Then I ran across your studies. In my estimation these studies are the best source of quality industry information available. Whether it be wages, pricing, industry trends etc. these studies give me valid up to date information to run my business that is available nowhere else. Please keep up the good work!”

Jon Robson
Auburn Document Centre
Auburn, NY

“I immediately raised my digital envelope prices 5%. It more than paid for the study in less than a month.”

Bob Roenfield
Edison Press
Sanford, ME

didital-4-p-sample-pages-sm

Click above to download sample pages.

Check out entry on the Home Page of this website titled “FREE Sample Pages…” where you can actually download four sample pages from this just-released study. As always, all studies sold by NPRC and/or QP Consulting, Inc. are sold on a 100% money-back guarantee!

 

Presidential Poll Results

For Immediate Release

Party Affiliation Does Not Correlate to Expected Presidential Outcome according to the result of our latest Presidential Preference Poll, conducted Oct. 19-20, 2016.

Melbourne, FL – With the third presidential debate mercifully behind us, we at the National Printing Research Council (NPRC) thought it might be interesting to see how this year’s tumultuous presidential race is playing out among entrepreneurial quick and small commercial printers. With that in mind, we launched a brief Survey Monkey poll of print shop owners.

image014Not surprisingly, the percent of printers polled who identified themselves as Republicans far outnumbered those saying they were Democrats. In fact, more respondents identified themselves as Independents than identified as Democrats. With nearly 200 responses tallied, the results were: Republican (59.5%), Independent (23.7%), and Democrat (15.0%). A tiny percent (1.7%) said they were something else.

When printers were asked which party’s policies they generally agreed with, the Democratic party (18.2%) edged Independent (9.9%) but Republican party policies were far and away the most popular with respondents at 66.3%.

image003This trend held when respondents were asked who they planned to vote for. Donald Trump (63.7%) far out-polled Hillary Clinton (26.3%) with Gary Johnson (8.8%) and Jill Stein (1.2%) trailing far behind. However, when asked who they expected to capture the Presidency, Gary Johnson and Jill Stein got no votes, which was not unexpected. What was somewhat unexpected was by a two-to-one margin survey respondents said they expected Hillary Clinton (66.9%) to trounce Donald Trump (33.1%).

While this poll is not scientific, it does give a snapshot of how printers are feeling as the presidential race winds to a close.