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Gonna Sell - 3

Copyright Thomas P. Crouser, December 18, 1995 Crouser & Associates - Helping Printers Prosper Since 1985

Pre-Christmas shipping of the 1996 CROUSER GUIDE TO ESTIMATING PRINTING will end on December 21st! Orders received after that date will be shipped in January 1996. Call now. (304) 342-5100. 1996 GUIDE N-O-W S-H-I-P-P-I-N-G!!!

Transmitted from New York City

Heard from former NAQP activist David Oswald recently. Dave, you might remember, was quite active in NAQP as the chairman of SMUG and a member of the NAQP board as well as a frequent speaker at association meetings. Dave, who has spent the last eight years on the franchise sales and management side of the business, is currently Vice President, Development for Insty-Prints, Inc. Dave had seen our September 1995 Crouser Report on Selling This Business and it inspired him to write. Dave may be contacted at MNOZZIE@aol.com.

Dear Tom:

Your September issue is an excellent piece on what is becoming a hot topic for the early entrants into the quick printing business. Many of those who got in during the seventies and early eighties boom are now at or near retirement age. Altogether too many become fearful and frustrated as they have what I call a reality dose when they realize the true value of their business. Better information, such as your provided, will help ease the situation and assist those nearing that transition point in planning their exit.

Having spent eight of my sixteen years in the quick printing industry on the franchise sales side, I have seen some small business valuation methods that would boggle the minds of most reasonable folks. Those aside, the PIA (Printing Industries of America, Inc.) has a good publication available for purchase that I would recommend called Practical Guide to Printing Business Valuation by Thomas B. Smith. It offers three basic, generally accepted methods of valuation. You are probably familiar with the piece. I think it is a good one.

The methods of valuation are:

After all the calculator tape has rolled onto the floor and the spitting and spewing has subsided, I tell my Franchisees to take whatever price they arrive at and try to give it an objective look as a prospective buyer. If it won t pass the Buyer s Litmus Test, then it is most likely too high. (In eight years, I ve never had a Seller suggest a price that was too low.)

I use a hypothetical example to illustrate my point: Let s say your business grosses $500,000 annually and you have an owner s cash flow of $100K. Using the Rule-Of-Thumb method, we ll multiply your cash flow by 3.5 to arrive at a price of $350,000. You are willing to finance 80% over seven years to a qualified buyer with a 20% cash down payment.

As your prospective buyer, I need to see that your cash flow will do three things for me. First, I need to get an exceptional rate of return on my down payment. In today s environment, I call that 20%. (My mutual funds are considerably less risky and have earned nearly 15% this year.) So, 20% of $70,000 is $14,000.

Second, your cash flow needs to pay my manager or me a salary commensurate with that paid to a manager of a comparably-sized business in our industry. Let s say that s $36,000.

Lastly, the annual debt service on the $280,000 balance cannot exceed what is left over from the cash flow after deducting the first two items or, in this example, $50,000. Financed over five years at 9%, the annual total of the monthly payments on the balance is nearly $70,000. Over seven years, the payments total $54,000. Neither scenario gets a passing grade.

If the Seller wants to stick to the $350,000 price, he will have extended the payments beyond seven years (which doesn t really appeal to me). Otherwise, he can reconsider the price, drop it to $325,000, finance 80% over seven years at 9% and the numbers work. That scenario passes the Buyer s Litmus Test!

Truthfully, (many resales) are troubled stores with little or no cash flow. These folks are hurting and can t pay their bills. If they can get out and avoid personal bankruptcy, they re happy. They have some business fixtures and equipment, a customer list and a franchise license for the area. The sum of those three assets usually will cover their debts leaving them with nothing more than the value of the experience. Sometimes the consequences aren t nearly that pleasant.

Your September issue (Crouser Report) was so well done that I would like your written permission to include copies of it in our Resale Package that we send to our franchisees who are contemplating the sale of their business. . . .

David C. Oswald
Vice President, Development
Insty-Prints, Inc.


Crouser & Associates Performance Group program includes two on-site evaluations by Tom Crouser each year along with two group meetings. Management training is held during the group meetings along with participation in a meeting with non-competing printers. Join others who have decided to run their business instead of the business running them. Reply to by Email to Tom Crouser for more detailed information or call Clark Workman at (304) 342-5100. Or fax (304) 342-5187 or contact crouser@ibm.net.
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