Quick Consultant: Financial Benchmarking & Golden Parachutes

Financial benchmarking and golden parachutes—what do they share in common? I’ll begin by telling you a brief story about a gentleman with a golden parachute (something we would all love to have) and the problems he has encountered trying to purchase a profitable printing firm.

A couple of months ago a gentleman in his late 40’s (we’ll call him Bob) asked me to help him find a printing firm he could purchase. His home is in the Northwest and for the past six years he had been COO at a large corporation involved in the music industry.

Last fall the company downsized and his position was terminated. He had been earning $140,000 a year plus benefits and bonuses that, in some years, were equal to twice his salary. He received a very generous severance package, in the $300,000+ range.

As generous as it was, Bob still needs to work, so he began to research various industries and businesses he might purchase. Printing was one of those industries. He told me he wanted to purchase a business with a solid record of performance—one that could produce enough earnings to pay him at least $125,000 to $140,000, while still generating enough additional cash flow to purchase the business.

“First things first,” I told him. “You need to call NAQP and purchase the 2008-2009 Operating Ratio Study and read it thoroughly. If you do, you will most likely know and understand this industry better than most of those who are already in it.” Well, Bob followed my advice and hired me to help him search for some ideal candidates.

Now I want to connect the dots and explain how a golden parachute and financial benchmarking relate to Bob’s search to buy a printing company.

Benchmarking Study Launched
In mid-February, NAQP launched its 2010 Financial Benchmarking Survey. This biennial survey (previously called the Operating Ratio Survey) is one of the most important surveys conducted by NAQP. If you did not receive an email invitation to participate, there’s still time, but you must act right away. The deadline for returning this survey is March 22, 2010, and this deadline will not be extended.

Based upon more than 30 years of consulting and research in this industry, my advice is quite simple. As sexy as studies dealing with pricing or wages and benefits might be to readers, the value of these types of studies pale in comparison to the contributions that a financial benchmarking survey can offer to your business.

NAQP’s 2010 Financial Benchmarking Survey asks 65 key questions regarding the financial health of your business. The vast majority of these questions can be answered using your company’s 2009 year-end financial statements, i.e.: your P&L report and balance sheets. With this information, even if it is only preliminary, it should take no more than one hour to complete the survey and submit it electronically. You may also return your survey by mail, but you will still have to download the survey PDF. Getting your bookkeeper or CPA to complete this survey is also an option.

Participating in this survey involves a two-step process. First, go to www.surveyadvantage.com/NAQP10financial, read the instructions, and print out a PDF of the survey. It should take no more than 40 minutes to enter the data. You then have two choices, you can either enter your data electronically, or you can return the survey by mail, being sure to include your business card.

So, what do you get in return for your participation in this biennial survey? You will receive a customized Financial Benchmarking Study that compares your P&L statement, balance sheet, and key financial ratios, side-by-side, against other participating companies.

These customized reports were offered for the first time in 2008, and they received praise from virtually all 345 companies that participated. Please note that these customized reports are made available at no charge only to participants. NAQP will, however, sell a much larger 2010 Financial Benchmarking Study in May 2010.