“Not really” she responded. “We each work about 50 hours a week and we have one skilled press operator who runs a five-color Heidelberg Speedmaster fed by a CTP platesetter. The press runs most of the day. My husband helps out in bindery and also makes a few sales calls. I work up front doing the billing, etc.
“We charge a lot for what we do and we consider ourselves a very high end shop. We have very little walk-in traffic, and we do a lot of high quality printing for local printers in our area. Even with the recession, we have been very busy.”
Finally, I asked her, “Why are you interested in a valuation?” She said they had been approached by one of their large customers; a printing firm with sales in the $4.3 million range.
“They are a highly specialized digital printing firm, but see the value of what we produce for them and other local printers. And out of the blue they asked us the other day if we would be interested in selling. They seem serious, so we want to get back to them with a price,” she added.
This was the second time within one month that I encountered a firm with such a high value. I calculated their owner’s compensation at 25.8%, and that was after expensing back to the business a fair market salary for one of two spouses.
I valued the business at $690,000, and I advised them that if they had the opportunity to shorten their business plan from 10 years to seven, I would jump at it.
Selling for Top Dollar
You don’t have to be a multi-million dollar firm to sell your company for top dollar. You do, however, have to run your business by the numbers and concentrate on adding value to your firm. And that means a company that can produce excellent cash flow in addition to paying you, the owner, a “living salary.” You can’t sell excuses or potential, only real value.
Key Ratios – This bar chart represents key industry ratios for firms with annual sales in the $600,000 to $999,999 range. Firms in the top quartile can often end up selling for 70-80% of annual sales. Firms falling into the bottom quartile often have little or no value, meaning the owners often just close the doors, walk away from the business, and possibly get 10 cents on the dollar for their old equipment.
This bar chart represents key financial ratios for firms with annual sales between $600,000 and $999,999. Anderson Graphics, is the fictional name for the last firm analyzed in this column.
Note that while their cost of goods was higher than most, their total payroll, even including adjustments made for one of the working owners, was outstanding. Combine that with excellent levels of productivity and you have the makings for a high owner’s compensation, plus a very high valuation in the event this couple wants to sell.
Senior contributing columnist John Stewart owns Paragon Printing & Graphics and is president of Q.P. Consulting Inc. Contact him at 2110 S. Dairy Road, West Melbourne, FL 32904, call 321/727-2444, email email@example.com, or visit his website at www.quickconsultant.com.