From: TomCrouser@aol.com
Date: Wed, 31 Jul 1996 09:47:43 -0400
Subject: Business Evaluation and More
Content-Length: 20059
X-UIDL: 838827611.000

Crouser Report OnLine Copyright 1996 Thomas P. Crouser, July 31, 1996 -
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consent of the copyright holder.
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Business Evaluation and More
Transmitted from Charleston, West Virginia

Welcome to this, the 100th Edition of the Crouser Report OnLine, published
since September 1995. That s about two editions per week for those of you
keeping score.

Index: This week our letters are about: VALUING a digital print shop; Even
More About Electronic FILE Transfers; Industry CREDIT Card comments; a
question on the West Virginia TECH program; LaserMaster DISCUSSION; two
readers want your response to their question of  WHAT to buy; and some NOTES
from around the globe.
*****
Subj:	VALUING a Business
From:	Wondering
To:	      TomCrouser@aol.com

Tom, I read in one your recent postings that some people evaluate the worth
of a printing business by a multiplier of 3.5 times cash flow. Don t think
so. Consider the following hypothetical printing business: 

o 12 employees + husband and wife management team.
o Twin networked DocuTechs producing 4.5 MM to 5 MM imp/mo. Copy received off
disk, from FTP d printfile transfers, and from hard copy. 
o 24 hour, 3 shift operation, 7 days per week.
o Bindery includes Sickinger puncher, perfect binders, folders.
o No other printing devices or presses. All fine printing needs from existing
accounts are subcontracted, including manual covers. No fine printing work is
ever vended unless vended value meets stringent minimum 75% margin over cost.
o 1995 Sales exceeded $2 MM.
o Net 1995 margin @ 19% Return on Sales after management salaries of $100M+,
+ usual fringes such as cars, health & life insurance, etc. etc.

Assume the management team above derived a minimum of $270,000 in
discretional margin over and above their fringes and salaries of $100,000, to
total $370,000. For anyone to receive a yield of $370,000 would require them
to receive a realistic 10% return on their invested capital of $3,700,000. So
that business has got to be worth a minimum of $3,700,000, not the 3.5 X
370,000 or $1,295,000 formula above. Add to that $3.7 MM value, the
additional value of 12+ years of precise pin-point niche marketing, the value
of market expertise, the value of using the latest in cutting edge
technology, the value of excellent financially responsible customer
satisfaction and goodwill, low overhead, great 5 year building lease, a
future 70% potential increase in market penetration, and token competition. 

Now assume the management team s son, a practicing attorney, wants to quit
the law business and buy that printing company. What would be a reasonable
sales price? 

Thank you. Wondering
*****
Dear Wondering: The 3.5 times cash flow you indicated was a survey report of
the average selling prices for small businesses. An average is the best of
the worst and worst of the best. Obviously, an individual situation is valued
independently and negotiations commence until a price is agreed upon.
Everything up to that point is speculation.

So, let me indulge in a little speculation. You indicated, I think, a
$370,000 cash flow and say 

For anyone to receive a yield of $370,000 would
require them to receive a realistic 10% return on their invested capital of
$3,700,000. So that business has got to be worth a minimum of $3,700,000, not
the 3.5 X 370,000 or $1,295,000 formula.



Beg to differ. You are utilizing a capitalization of earnings process to
value the business. Unfortunately, you are overlooking one thing, in my
opinion: RISK. Your proposal might be good for a liquid stock, say IBM. But,
it s not gonna fly for Pretty Fast Printing Company regardless of the gadgets
you have. For someone to invest in a small business, they have to assume the
RISK of management and potential loss due to market changes, not to mention
the illiquidity of the investment. That all works to reduce the price
earnings multiple a knowledgeable investor would assign to such an investment
(price/earnings = earnings multiple or number of years required to get your
money back). I wouldn t give you the next 10 years of my life for a small
business (yes, even $2 million in sales is a small business) in an industry
which changing so rapidly that today s technological advances are tomorrow s
eight track stereos in exchange for getting to keep all of the earnings on
the other side of the ten years. 

Nah, I d stick with my stodgy 3.5x earnings for your proposal, and maybe less
if the track record for these earnings isn t long. But, then, people will buy
Netscape at a high price/earnings multiple before they have ever made a
profit. Only difference is. . .the people who buy Netscape are just
investing. The people who are gonna buy your small business will be
dedicating their lives to it. Tom
***** ***** *****


Are You Ready To Hire Your First Salesperson?

 That s the topic of our
breakfast meeting, Wednesday, August 21st in Dallas at 7 am for the Printing
Industries Association of Texas. $35 members, $70 non-members. Message
piatexas.jan@NT1.azone.net (Jan Thornton) for more information. See you
there.
***** ***** *****
Even More About Electronic FILE Transfer Software
*****
Subj:	Re: Electronic FILE Transfers
From:	rstor@panix.com (Robert Stor)
To:	      TomCrouser@aol.com

Tom. . .There is an important consideration that was not mentioned in the
discussion about Launch/ASAP.

This consists in the perceived lack of security of documents sent via the
internet. Whether or not it is justified (and I think that it is not), there
is a real fear in clients that deal with financial/confidential information
of having their files hacked by a pimply 14-year-old. Or by their competitor.

If you can provide a secure way to get the files to you, you have a
competitive advantage. The only un-attended way to do this is with a BBS or
with Launch/ASAP. 

Frankly, I would rather spend the $ on Launch (as I have) than on setting up
and maintaining a BBS. Ultimately it is cheaper.

As you said, it is only one of several tools for receiving files from clients
but it is an important one, especially for local file transfer. For large
documents coming in from overseas it may be cost-prohibitive, but not if the
security concerns are weighty enough.

By the way, I would not recommend using AOL for file transfers. We have had
problems with e-mail that had more than one MIME attachment. In addition to
this, I believe that there is a maximum of 2 megs of disk space allocated per
screen name. While this is sufficient for most b/w files, it is ridiculously
small for color files.

Bob Stor, Copycats
Manhattan, www.copycats.com
*****
Subj:	Re: Electronic FILE Transfers
From:	Michae0912
To:	      TomCrouser

Tom, Hi, been a while. . .About all the comments on Launch. We have Launch,
and love it. And, you are absolutely right...the printer may know 

all about
zipping and zapping

 on the Internet, but most (at least mine) customers seem
to appreciate the spectacular package that Launch represents; it gives them
peace of mind, we provide unlimited tech support if needed (never has been,
yet) and it is simple, simple.  For many customers (over half, so far),
Launch is their first experience with a modem.

Launch was expensive, but worth it.  We have never regretted one day or one
dime we spent on it.  And, best of all, I haven t got a local (within 40
miles) competitor yet that has it (or anything like it) and we are KILLING
the competition.  So far, not one of my 4 competitors has a modem - need I
say more?

MIKE
Printing Center, Bartlesville, OK
*****
Point well taken Mike. I ve said, 

. . .if you have the bucks, then put
Electronic File Transfer programs high on your list of things to evaluate.
The reasons, in my opinion, are here.


*****
Subj:	Re: Electronic FILE Transfers
From:	jeffreyh@hayzlett.com (Jeffrey W. Hayzlett)
To: 	TomCrouser@aol.com

Tom, Great stuff.....!!!!!    FYI on your comments......

Come on...Do you really think that a dissatisfied customer is going to
continue sending their work to you. . .  They are going to get on the phone
to the next printer who will meet their needs. . .(Tom s Reply) . . .Both
Launch and ASAP, to my limited understanding, will enable you to lock your
number into the system. . . . 

LAUNCH!  is the only one that locks in your number. Your customer (can)
change the number with the other software.

Jeff Hayzlett, HAYZLETT & ASSOCIATES, INC.
Sioux Falls, South Dakota, 
***** ***** *****
My Next Saturday Morning Power Pricing Seminar will be in Colorado Springs on
August 24th. Call (304) 342-5100 if you want to attend this FREE session.
***** ***** *****
Subj:	WHAT To Buy? Prepress
Date:	96-07-29 15:51:20 EDT
From:	proprinters@taconic.net (David Scott)
To:	tomcrouser@aol.com

Looking to bring our prepress dept. up to snuff with digital computer to
plate (poly) and computer to negative equipment. We only want to spend about
15-20 thousand excluding computers/software/scanners. Although I have been
reading loads of info on it...the variety seems overwhelming.  It appears
that the market is exploding with poly printers and I just do not want to get
stuck with junk!  Do you have any recommendations? David L. Scott, Pro
Printers, Hudson, New York
*****
Subj:	WHAT To Buy? Press
Date:	96-07-26 16:38:09 EDT
From:	GottaNow
To:	      TomCrouser

Tom . . .To get right to it, what can you tell me about digital presses?  I
have received literature from one company, Riso, about their Risograph which
can print one color onto an 11 x 17 sheet at the rate of 130 pages per
minute.  The only problem is the cost, which is around $22,500.  How much
business must be generated by this machine to justify the expense, and what
other companies offer this type of press that are within the budget
constraints of a small business?  I would appreciate any help you could give
or a direction you could point me in to stay on top of the competition.
 Thanks. GottaNow.
*****
Okay, Gotta. As a rule of thumb, I usually look for a 5:1 sales return on
equipment investments (asset turnover). Invest $20,000 and I would expect
about $100,000 in sales.  As for the alternative equipment available and
prepress, I leave that to our experts in the field. Whatcha think about this
everyone? What are your suggestions? I ll publish your replies soon.
*****
Subj:	Industry CREDIT Card
From:	TPI  YORK
To:	      TomCrouser

The credit card deal for business to business is growing very quickly.  .
.Lonnie (oldest boy at chocolate plant) told me that his company is doing it
for purchases under $XXXX. Eliminates a lot of stuff for everybody. We
received a phone order for a copy job today and before we received the
originals the purchasing dept. called back and gave us a credit card number
to bill it against.  This was from a large mfg. who we have done work for and
have them on open account. The only thing I see NOT happening is a lot of
interest on the part of credit card co. to issue cards to businesses except
American Express (who sent me a free gold card last week for the account I
have with them). Did see an application come through the other day for one,
however, fine print said must be current with all suppliers before issue, I
know we all are!!!!!!!!!!

Good seeing you guys at show. 
Dick, York, Pennsylvania
(Tom s Note: Son Lonnie is CPA Lonnie who, yes, is Comptroller of a chocolate
plant. Dick s other son is an FBI agent. . .How do I know these things?)
*****
Subj:	West Virginia TECH 
Date:	96-07-30 13:55:54 EDT
From:	GonnaHire
To:	      TomCrouser

Hi Tom . . .Thought would drop you a note as we had a West Virginia Institute
of Technology - Montgomery, West Virginia graduate apply at our company for a
pre-press / Desktop Publishing position. Are you familiar with this school?
Do they have a good curriculum? He has a B.S. degree in Printing Management.
Since he was from West Virginia, the first person I thought of was you!

Since our press operator that we hired direct out of trade school has worked
out so well, we might be tempted to give this fellow a try at an entry level
status. It would be our small part in helping out the employment situation in
West Virginia.

Best Regards,
GonnaHire
*****
Hey, Gonna. . .Well, considering I taught Printing Plant Management at WVU
Tech to senior printing management students for seven years, I am somewhat
familiar with the program. Yes, it is a very good school. I would encourage
you to call the Printing Department at Tech (WV Tech - Montgomery, WV) and
talk with Jack Nuckols who is the department chair. I am sure he will be able
to fill you in on this student. Tech is a four year degree institution and
has about 70 students or so in the program, so instructors become very
familiar with the individuals. And, yes, it is one of the top five printing
schools in the country, thank you very much. As a side note, my colleague
Phil Ruggles (Printing Estimating textbooks and professor at California
Polytechnical Institute) is also a West Virginian and WV Tech graduate among
many other industry leaders. Thanks for letting me plug good old WV Tech.
*****
Subj:	LaserMaster DISCUSSION
From:	RayANDREWS
To:	      TomCrouser

Ray Andrews responds to comments published earlier.

A reader wrote, 

I m pleased his LaserMaster is working very well for him,
my experience is . . . .(it is a) so-so  product coupled with the lousiest
customer service I have ever been unlucky enough to be involved with.... The
questions...what to do with camera ready jobs and how are jobs handled that
only require a new or different logo . . . You should see the hassle
currently in progress trying to get their proprietary postscript 

dictionary


to work with a dandy new $40 program I bought called 

LaserMerge



Ray replies:
This is a transition situation. You have to see it that way and play it that
way-my guess, for about two to three years. Reasons include: not all jobs
will respond to direct-to-plate technology. Long runs with large screens are
a good example. The mylar plates (even Pronto Plates which are a step up from
anything else we ve tried) just won t print out right on large screens
(teardrop dropouts are too common, touch ups show because they print full
color) and they Do run dirty with some PMS colors (dark blues, for example).
Paper plates are much better against these problems, but stretch and even
tear out of the grippes in as little as 1,000 impressions.

So, we keep our Itek 430 cranked up for crisis ... either taking a paper
printout from the LaserMaster ... or ready for film-to-metal jobs.  At least
the LaserMaster print out over 11 x 17 sheets, which of course our
LaserWriter II cannot...and it is a good and reliable 1800 DPS vs. 300 or 600
in older printers.

Why bother? I think these problems are months, not years from solution. It
meets a market desire, if not a market need. Truth is, customers are happy to
think it s happening, even when we have to quietly slip over to make
megaliths or metals - even send out for hi-resolution film from a bureau. 

Often in new technology, the promise exceeds the performance in the early
days. But eventually, performance catches up ... then, I think, you have the
advantage of being the real experts when the technology explodes into common
use.

And besides, what lovely days it is for the owner when both the Itek and the
LaserMaster are churning out plates, just to keep up with the orders.
*****
And, to show you how the comments you make to us get around, here s a couple
of recent notes.
*****
Re:       NOTES From Abroad
From:	copymast@mpx.com.au (Copy Master)
To:	      tomcrouser@aol.com

Tom. . .I have heard much about your work from down here in Australia from
Harry Brelsford. After reading some of your information, I am most impressed
by the content that it has.

As both a board member of QPA in Australia and a paranoid business owner, (or
am I just getting a little older and governed by my own selective business
methods), I find value the information you provide. I would like to subscribe
to your newsletter.

Regards, Rick Dowsett
Managing Director
Copy Master (Adelaide - South Australia)
*****
Subj:	More NOTES From Abroad
Date:	96-07-27 17:27:15 EDT
From:	ferni@si.cordoba.com.ar (Fernando Triveri)
To:	      TomCrouser@aol.com

Hello. . .I m a member of the Graphic Arts and Related Activities Chamber
from Cordoba, Argentina. It s a non profit organization joining most printers
of our city (around 80 members). We re sharing resources and information
between the members of our organization, trying to be informed about the
latest tendencies of the graphics industry, as well as the best management
techniques available.

I am a subscriber of your excellent and informative Crouser List. I tell them
about your columns, and they re impressed especially about two of them: The
Case of Price and Five Reasons Printers Stay Poor. They want to publish both
articles in their bimonthly local magazine, because most printers haven t
access to Internet yet.

We would glad to get your permission for publishing both articles in two
consecutive issues of our magazine. We must to translate your articles to
Spanish (I can e-mail the translated version for your approving) and we ll
proud to send you as many issues as you want.

Hoping you could help us in our effort to make a better magazine at every
issue, we ll happy to get your consent. Many regards from Cordoba, Argentina.

Fernando Triveri
Member of the Camara de Artes Graficas y Afines de Cordoba, Argentina
(Graphic Arts and Related Activities Chamber from Cordoba, Argentina)
*****
Well, we subscribed Rick and gave permission to Fernando to reprint. I just
wanted to share these with you to illustrate how small our industry really
is. . .and how much smaller it is becoming. And, finally, about those New
Jersey gas pumps. . . .
*****
Subj:	Pump your own gas....
From:	SteveW21
To:	      TomCrouser

What about this?  40 years ago, when gas was 14.9 cents/gal, you d drive into
the gas station, and 4 guys would rush out, pump your gas, clean your
windshield, air up your tires, check your oil & water, and more!  And there
were gas stations on all 4 corners of the intersection. Now, with gas at
$1.45 a gallon, you have to do all that yourself, and pay first, to make sure
you don t bolt for the door without paying.

And, at least in California, they re tearing down gas stations, and putting
up TACO BELLS! So, gas was apparently more profitable at 14.9 cents than at
$1.45, and 49 cent tacos are even better.  Go figure.

Steve Waechter, California
*****
Thanks, Steve and to everyone who writes. Usually, I have about 30 or so
messages stacked in my file to respond to, so please be patient if yours is
not answered through this report. For those asking questions, I try to give a
quick answer quickly, then respond more fully here at a later time. Thanks
for your patience.

We re off today to welcome the first of our Sales Management Conference
attendees. Looking forward to a good time with a full house. Pamela and I
will be hitting the road again next week. So, Happy Trails.

Tom and Pamela Crouser
***** ***** ***** ***** ***** ***** *****
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