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Selling to an Employee; Brokering; Terminating; Bulk Mail
Crouser Report OnLine March 15, 1996
Transmitted from Orlando, Florida
Tom Crouser presents
Power Pricing
in NEW ORLEANS on Saturday, March 23rd
for the Gulf Coast Association of Quick Printers. For meeting information,
message Gator4Fun@aol.com. Visitations: two on-site visitation dates are
available in the south in April along with one in Colorado in May. Other
appointments are being accepted for September and later. Reply to me for more
details.
We ve got several letters I have been holding for awhile so I would have a
better opportunity to answer them. Well, there s no time like now. So, here
goes. Covered are the following: selling to the outsider; to broker or not;
firing an employee; and providing bulk mail services.
Selling The Business To An Outsider
Jim Bailey asks about succession and exit strategies for the print shop owner
who are looking to current employees to buy the shop.
Subj: Gonna Sell: Who Will Buy?
From: PIPBAILEY
To: TomCrouser
Your previous e-mail (12/15/95 and 12/16/95) address the selling price of the
business. Has the subject of succession and exit strategy been addressed by
anyone. e.g. A long-time, hardworking employee, (young and energetic) has
expressed a desire in owning the business. The current owners would like to
phase out of the printing business in 5-7 years. Have any practical methods
been formulated to facilitate this?
I think there are a number of franchise owners, who do not have children
interested in the business who are looking toward existing employees as
possible buyers of their business. I feel there are a number of caveats in
setting up employee ownership. However, there are also some positive benefits
such as increased team spirit as well as employee loyalty. Have you published
any books on the subject of selling your printing business, including exit
strategies, etc. I saw where Larry Hunt had published one, and I have
ordered, but not received it yet.
Thanks, Jim Bailey
Yes, Jim, there are a number of concerns about selling the business beyond
the actual price. And, no I have not published any books on it. But here are
some thoughts. First, sell to someone who does not know the printing business
for cash if you can. I have seen it happen a few times for prices far beyond
what the business was worth, in my opinion. So, if you can do that, do so and
do it quickly. (Someone who has just retired or was downsized and has a lump
sum cash disbursement is the best candidate.)
Now, assuming we don t have children to train nor a wealthy buyer, we must
recruit a successor. Many print shop owners, as you noted, would look toward
current employees. I wouldn t rule them out, but I certainly wouldn t limit
my recruitment campaign exclusively to them (except if the business was in
trouble - generally they are the most successful buyers of troubled
businesses). Now, in recruiting the successor, we have a great stake in their
success. If they succeed, we get paid for the business. If they don t, well,
we are forced to leave Cancun and take what is left of the business back. So,
I would make a full recruitment effort for a successor.
Like any job recruitment plan, I would begin by describing the idea
successor. I would like my print shop successor to have a background in
supervising people. Could be military or other jobs, but a big part of
running a print shop is people. And I d place my money on someone who has had
some successful experience rather than the guy who I will train to do it.
And, I think this experience should be some place other than our print shop.
A big corporation downsized supervisor would do. I also highly recommend the
Dale Carnegie Course in Human Relations as a basic training course for
business managers and people supervisors. Hopefully, they have had this
course or would be willing to take it.
Next, I would look for someone who can print. I know that we are
going
digital,
but the primary emphasis in this business is now, and will be for
the foreseeable future, an emphasis on mechanical skills. So, give me a
person who can print and who can understand many of our mechanical problems.
(I m sorry, but I am not a believer in the fact that anyone can run a print
shop. One client told me that the president of General Motors doesn t know
how to build a car. I replied,
No, but Ray of Ray s Plumbing better bet his
sweet corn he can print or he will always be held hostage by workers.
Those
owners who
know nothing
about printing are the ones who have the biggest
problems with the business in my experience.)
Now, I also know that there are people who can print who have never produced
in a production environment. I want someone who has done that. Could have
been a newspaper, business forms plant or quick print shop. But, give me
someone who has met deadlines for a period of time and who has had to spend
some long weekends at the plant.
Now, let s get digital. I d like this person to understand the basics of
electronic publishing and have a working familiarity with all of our programs
such as PageMaker, Corel Draw and Photo Shop. I d also like for them to know
the pre-press equipment in our shop.
And, since we are describing our ideal person, how about having some basic
accounting, business law and basic management courses.
The best and most probably the most successful buyer is one who has worked
in our business, so I would like for them to work in our shop for at least
twelve months or so.
Whoa. This is a lot more than what we knew when we started. Right. But we
didn t start with a business with $500,000 in sales. We started with nothing.
And we are turning over a business which should be earning $100,000 a year
on only a promise to pay us. So, yes, I am going to be picky about who we
choose.
Now, you will say that we can t come up with this person and you re probably
right. That s why this process takes a few years and can t be done at the
last minute. I would recommend bringing someone in at about five years out,
probably in the position of production manager. What they lack in the above
requirement list, they can make up during the period of time. No knowledge of
accounting? Take a couple of accounting courses. Don t have Dale Carnegie
yet? Then do it. Don t know PageMaker. Plenty of time.
What if they don t want to do all this? Well, that tells you something right
there. Like a good recruiter, go on until you find someone who does.
Now, about the money. Make sure they put in real cash. Don t give them a
bonus and have them buy stock with it. Have them go to the bank for a loan.
How much is enough? Sometimes $10,000. Sometimes $5,000. Sometimes $25,000.
But, don t expect a lot down. Usually they don t have a lot or they would buy
a business the easy way: with cash. Don t let them work it off. Make them
discuss their investment with their spouse and get the family committed to
the venture. Require specific covenants such as working capital ratios and
limits on withdrawals until the loan is paid.
Yes, Jim, there are many printers
looking toward existing employees as
possible buyers of their business.
That, in my opinion, can quickly result
in a disaster if they are not prepared much like my ideal successor. I have
seen no evidence of stock ownership plans,
one of these days this will all
be yours
plans, or
let s break this thing up among the kids
plans which
increase team spirit and employee loyalty. I would have to characterize these
as entrepreneurial myths. What does work is find a qualified and willing
buyer and sell it to them.
A Word On Children As Successors
I happen to advocate selling the business to children as oppose to gifting it
to them in any form. I would construct a training plan and expect them to
have the same skills as our ideal candidate above. After all, why should you
give it to them if they won t put their own money at risk? What should you do
if they tell you they won t put in the time and effort to train as a
successor? As hard as it is, find someone else for your sake, the sake of
the business and the sake of the family.
Additionally, I would not (NEVER) try to be
fair
with all of the kids. I
would sell it to some of them and then take the proceeds and split it up
among the siblings if I felt a need to be fair. To be perfectly honest, I
don t feel that need. I would probably spend the proceeds on the blonde woman
and let the kids worry about the inheritance, but that s another matter.
Thanks, Jim, for the excellent question. Sorry it took so long to answer
fully.
To Broker Or Not To Broker. That is the question. What is the answer? Here s
Frank.
Subj: To Broker or Not To Broker??????
From: PLEASPRINT
To: TomCrouser
Hi Tom: I have a question for you on a job that I have won and am about to
produce. The question is should I broker out this job or do it in house? The
specifics follow:
I have quoted (doing in house all aspects) a four color process job that is
10,000 brochures on 8.5x11. The job is full color both sides, including 3
separations. We have done all the type (about 1 hour) already. The price
that the customer and I agreed upon is $4,357. I have figured that it will
cost me in direct costs about $1,650.
Now the dilemma, I also had a broker quote this job for me and have found
that I can have this produced (soup to nuts, including shipping, type,
separations...) for $1999. It seems pretty cut and dry that I should send
this out. I was wondering what your thoughts were. Is there something I am
overlooking??
Sincerely, Frank Kissner, Pleasantville Printing, Bel Air, MD
P.S. I also want to thank you for the seminar you gave at the Capitol
chapter (of NAQP). It was very informative.
Dear Frank - Thanks for the kind words. The margin on this deal is $250.
That s the $1,650 direct materials cost vs. $1,999 total cost of the buyout.
So, my opinion is the buyout would be best IF YOU have other productive uses
of your existing time. Even if you don t, $250 buckaroos doesn t seem like a
good margin for your workers to print four colors two sides. Buy it out.
And, here s Michael who wonders how I can ever fire anyone. Hey, Mike.
From: Michae0912
To: TomCrouser
Tom: Thanks for the
report
for Dec. - it is great! I do, however, have a
question. You used the term,
fire
several times in your report, giving the
impression that if someone can t do the job (or doesn t want to after being
hired) - fire them and get someone else. Quick. Simple. End of subject.
My question - In this day and age of lawsuits, DHS rights, and the various
state labor commissions and boards (we call ours the Unemployment Office in
Okla.), please tell me, HOW can you just
fire
someone so easily? I ve
tried, and found my butt in court.
Now, I build files (paper work / documentation) but it takes months (I was
just told this past summer by the Okla. Unemployment Office that any
documentation less than six months would probably put us in court). They
strongly suggested we document even the most vile misbehavior and/or abuse
for up to a year in order to protect ourselves (the business).
I agree completely with what you say, and how you say it - but please tell
me, HOW do you just
fire
someone today?
I had a legal issues class last spring at PSU and the professor strongly
recommended allowing a full year of the most detailed (and in some cases,
even notarized) documentation, PLUS we had better be able to show sufficient
opportunities were given to the
offending employee
to train, re-train,
grow, self-evaluate, and
express themselves without fear of repercussion
or
we could still get in big trouble if we went to court.
In the past 2 years I ve fired 2 and both were a nightmare afterwards, even
though both were richly justified and well documented. (The Prof. suggested
making offending employees needing fired lives so miserable - without
stepping over any legal toes - that they would quit; but this seems morally
wrong doesn t it, besides setting yourself up to get sued for harassment or
discrimination)?
I m open to your thoughts on this. I like what you said, but just how long
does one wait until
firing
becomes a realistic issue? Again, thanks for the
reports...I love em.
MIKE, Printing Center, Bartlesville, Oklahoma
Mike - Hate to disagree with a professor, but if you maintain your employment
at will
rights,
you may discharge at anytime for cause, without cause or
for no cause at all. The best way to keep your employment at will rights
valid is by having a good set of employee guidelines which does not preclude
your right to
fire
at will. This can be done even in these days of
complications.
First place I would start would be considering if you are actually covered by
laws which preclude discriminatory firing. For instance, the Civil Rights Act
of 1964 which established the Equal Employment Opportunities Commission and
other various employment based laws, is applicable to you only if you employ
15 or more employees for 26 weeks a year or more. Now, some states have
companion legislation which is less than 15, but that is the general cut off
for most employment relations restrictions. My guess is you are not covered.
Second, even if you are covered, you can still maintain your employment at
will rights by not firing someone in a protected class for reasons of race,
color, creed, national origin, etc. So, I can own a covered company and still
fire you without cause as long as the cause is not a protected class right
(in West Virginia one can not
fire
a worker for being a smoker although we
can require them not to smoke on the job).
Although Oklahoma, like many other states, recognizes employee guidelines as
a contract, it can be contracted that you and I have agreed (contracted) that
you can quit at anytime for cause, without cause or for no cause at all and I
have the same right. I may terminate you under the same conditions.
Now, this is to differentiate the termination of an employee for no cause
based under employment at will rights and the payment of an unemployment
claim. Unemployment is a separate issue. The employee will probably win the
unemployment claim if they have been discharged for no cause. But, that
doesn t drag you into court.
So, as far as having to
show sufficient opportunities were given to the
offending employee to train, re-train, grow, self-evaluate, and express
themselves without fear of repercussion or we could still get in big trouble
if we went to court.
Sorry, I just don t agree. Protect your employment at will rights by not
creating a permanent class of employees by offering lifetime employment,
having probationary periods or creating a verbal contract and I don t see the
problem.
Now, for a really good question. Accounting. Makes my heart pitter-patter. A
reader wrote:
How do you calculate the current ratio? Specifically, do you
include the next 12 months of loan payments as payables or just those to the
end of the current fiscal year?
The precise calculation is found from information on your classified balance
sheet. Divide the Current Assets by the Current Liabilities (CA/CL) = Current
Ratio ($200,000 of current assets divided by $100,000 of current liabilities
= 2.0 or $2 of current assets for each $1 of current liabilities). Real
problem here is that many printers don t have the information for they don t
have a classified balance sheet.
Classified Balance Sheet
The balance sheet is based on the equation Assets = Liabilities + Owner s
Equity. Assets are everything you or your creditors bring into the business:
cash, accounts receivable, inventory, equipment, buildings and/or land.
Liabilities are things you owe to trade creditors (accounts payable),
governments (taxes payable) or lenders (notes payable). And, Owner s Equity
(Stockholder s or Partner s Equity) is the difference between what you have
(Assets) and what you owe (Liabilities). Thus, Assets = Liabilities + Owner s
Equity. (P.S. Technical bankruptcy is when Owner s Equity is a negative
number.)
Now, all Assets and Liabilities can be
Classified
as to current or
non-current. Currency is defined as the twelve month accounting cycle based
on liquidity from the date of the balance sheet. Will this result in cash or
require cash within the next twelve months? Thus, cash, accounts receivable
and inventory are all Current Assets while equipment, building and land are
all non-current assets. Accounts payable and taxes payable are obviously
Current Liabilities while a long term note is obviously Non-Current.
But Wait! All non-current notes payable have a current portion. A $1,000 per
month note (principal only) for 60 months would have $12,000 as the Current
Portion of Notes Payable and $48,000 would be assigned to non-current.
A 90 day note EVEN if it has been renewed time and time again, is a CURRENT
Liability, for it can be called within ninety days. (Military bromide: always
defend against your adversary s capabilities, not their intent.)
This is where most printers have inadequate information. From my experience,
it is the current portion of long term liabilities which is not recognized,
therefore the current liabilities are understated, throwing off the entire
current ratio.
Now, To The Question
Our reader asks,
Specifically, do you include the next 12 months of loan
payments as payables or just those to the end of the current fiscal year?
Many get wrapped around the wheel on this. When you actually make a payment,
it is applied to the non-current liability first (debit non-current liability
and credit cash). Only when the non-current liability is to zero, do you
apply the payment to the current portion.
Our writer also asked:
How do you deal with the value of work on the floor?
Ah, another great accounting question. Here goes.
You are speaking of a work in process (also called progress) inventory.
According to our sources, since work in process inventory must be reported to
the Internal Revenue Service when you are on the accrual basis if work in
process makes a material difference in your income, then I assume you are
already doing this (aren t we all doing - say,
Yes
class!)
The most accurate way to handle work in process is to operate a true job cost
system which tracks the time spent on each job as well as the direct
materials used on each job. Then, at any point, you may add up the charges
posted and that is your work in process inventory.
Assuming you don t do that, a quick way to handle it is to calculate the
total retail value of the jobs in the shop and then use a percentage of
completion estimate such as 50% to value the inventory based on their
percentage of completion. There are other possible methods and reasons, but
this is generally the quickest for you. Again, thanks for the excellent
questions. Tom Crouser
And now, a question on direct mailing services.
From: F1senn
To: TomCrouser
Tom: I just received several Letters on email. What a fantastic service! I
really appreciate the advice and please keep up the good work! Any advice
on bulk mailing and fulfillment services? I am getting into this area in the
very near future.
Thanks again!
Paul Nickoloff
Fotorecord Print Center
Well, I m about all answered out today, but here s something we picked up on
the net which might help. If you have an opinion on direct mail as an adjunct
service, please send us a message.
Subject: Re: Bulk Mail (was: junk mail info needed!)
From: twomilehi2@aol.com (TwoMileHi2)
I agree -- bulk mail is pretty easy to administer and can save big bucks. We
use it quite a bit and -- as long as you re using a current list -- the
delivery rate is just fine. One suggestion re: software: get Mailworks for
Windows. It s only $30 and will handle all your third class sorting. Just
import your database into MW and it will sort and print labels.
Jon Bard, Two Mile High Press
Okay, campers. That s enough for today. Keep the cards and letters coming in.
And, happy trails to you til we meet again.
Tom Crouser
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Crouser & Associates - Helping Printers Prosper Since 1985
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
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Date inserted: Friday, March 15, 1996 12:38:12 PM
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