As I said, this is a real mess. Considering the general economy and the financial health of this company, this is certainly not the time to be adding huge amounts of attorney expenses to the mix. Ironically, the partnership will be paying for Steve’s portion of the legal expenses, while Robert will have to pay his attorney out of his own pocket.
Lesson to be learned? Get a valuation of your business before you need it.
NAQP has released its 2010 Financial Benchmarking Study.
The best thing you could do for your business in the next 18 months is to purchase a copy of this 100-page study. To order, go to: http://www.napl.org/eseries/source/Orders/index.cfm.
It is packed with profit and loss statements, balance sheets, and key ratio pages—all designed to help you maximize profitability, regardless of your annual sales, location, or population mix. Plus, this study includes an outstanding industry overview and executive summary by well respected consultant and author Larry Hunt.
In my opinion, this is by far the most valuable publication available to the printing industry—and shame on you if you don’t have it! After you get the study, if you have any questions, don’t hesitate to give me a call. I will be glad to offer my assistance.
With a huge database available from the study, it is quite easy to enter a set of parameters and produce a P&L, balance sheet, and key ratio page for companies that match the criteria I select. So I thought I would keep it simple.
My search was to find single companies that fell in the 20-25th percentile and to compare their financial performance against those in the 74-80th percentile. Ordinarily, I would have restricted this search to companies within a specific sales range, but I forgot to do so. Interestingly enough, the average sales for both sorts were very close to each other, thus adding more importance to the ratios I uncovered.
Space will not allow for much commentary. However, there are many lessons to be learned when searching out how some owners withdraw $175,000 or more from a $1 million company while others struggle to withdraw one fourth that amount ($45,921.)
One last thing. There was no magic in my selection process, other than I did not want to necessarily look at the very worst or the very best. I wanted a good selection of the under-achievers to compare against what I would call the over-achievers.
Top Firms: 74-80th Percentile
Total Sales $1,040,278 100%
Cost of Sales $311,750 30.0%
Payroll $293,072 28.2%
Overhead $259,807 25.0%
Total Costs $864,630 83.1%
Owners Comp $175,648 16.9%
Sales per Employee $126,709
Excess Earnings $110,027
Profits per Employee $15,260
Current Ratio 3.23:1
Return on Assets 27.07%
Bottom Firms: 20-25th Percentile Total Sales $988,785 100%
Cost of Sales $293,643 29.7%
Payroll $357,301 36.1%
Overhead $291,921 29.5%
Total Costs $942,864 95.4%
Owners Comp $45,921 4.6%
Sales per Employee $115,512
Excess Earnings $(17,270)
Profits per Employee $(2,284)
Current Ratio 1.79:1
Return on Assets -29.8%
The breakdown for sales was quite similar between the extractions. Approximately 45% of total sales for the laggards came from offset printing, while the leaders reported about 42%. The profit leaders reported significantly higher sales (12.2%) from mailing services than did the laggards (5.4%).
The average cost of goods between these two extractions was almost identical. In fact, COG as a percent of sales has changed less than 0.5% in 27 years. As a general rule, most printers appear to keep their COG within a range of 28-30%.
Payroll is the big number that almost always seems to jump out. How can a company doing about $55,000 less in sales can end up spending about $64,000 more in payroll costs? Payroll costs of 36% or more is almost indefensible.
Note that companies at the top report healthy Excess Earnings, companies near the bottom report negative Excess Earnings. This is the stuff that makes for high company valuations.
If you would like to know more, contact NAQP today and purchase this information packed study.
Senior contributing columnist John Stewart is president of Q.P. Consulting. He is co-author of the industry best seller “Print Shop For Sale” (www.printshopsforsale.net). Follow John’s blog on his website at www.quickconsultant.com. Contact him at 321/727-2444 or email@example.com.