Nice Note From Client

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

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...

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

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...

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!

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

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).