I just finished reading a two-page narrative written by a print shop owner who wants to sell his business. Reading his comments reminded me of a column I wrote for this magazine many years ago. The column dealt with a few of the common lies told in our industry.
The most famous as well as the most frequently used lie is told to a customer who calls the office and asks about the status of her job and whether she can still expect to pick it up today. “By the way, how does it look?” she will often ask.
The CSR who answered the phone knows nothing about the job and goes to find Bob, the owner. The job came in last week, but because Jeanne is one of Bob’s special VIP customers, the job jacket went directly to his desk—where it has been sitting ever since. Consequently, no one ordered the stock, nor did anyone realize that the job had a drop-dead delivery date for today.
The First Lie
Bob, experienced at handling crises like this for more than 20 years, picks up the phone and the words just slide smoothly off his tongue. “Hi, Jeanne. Is that the 5,000 copies of that brochure for the fundraiser?” Without a pause, Bob continues, “Well, the good news is that the job is done and it looks great, but the ink is a bit too wet for us to trim it or fold it, so do you think we could have until tomorrow instead?”
Of course, the reason the ink is still wet is because it is still in the cans! Not only has the job not been printed, but Bob is at a loss as to where he is going to get that much paper and how he is going to get the job printed and folded by tomorrow.
The Second Lie
The second lie comes quickly when Jeanne says, “I certainly don’t want you to rush folding the job if it’s too wet, but could I pick up a couple of the wet copies to show the board?”
Bob’s response is immediate. “Jeanne, I would love to get you a couple of copies, but that job is being printed at our production facility in Andersonville. Yes, it is 150 miles away, but that’s where we run our quality printing.”
Bob’s employees’ jaws drop because they have no second location. They have never heard Bob use an excuse like this and, anticipating their questions, he holds up one finger to his lips and whispers, “Shhhh… I will tell you how we are going to solve this problem after I get off the phone.”
The Third Lie
After spending what seems like a lifetime of telling white lies to customers, some owners get to the point they are ready to throw in the towel and get out of the business. This is where the third lie is born. They put their business up for sale and, in the process, they typically write a short narrative describing the company, its history, its potential, and the reason it is being sold.
Most of these narratives I read end with a paragraph almost identical to the following: “After 20 years in business, the current owner has decided to pursue other interests. If desired by the new owners, the current owner will remain for a specified period to assist in the transition.”
Translated, what the owner is really saying is, “I hate this business and I wish I had never bought it. I have a variety of ailments, including sleeping problems. Customers drive me crazy!”
Why Bob Doesn’t Sleep
Why isn’t Bob sleeping at night? Well, in preparation for selling his business, he’s taken a much closer look at his balance sheet and is shocked by what he finds. His total current assets are $73,100, but his current liabilities are $165,000. No wonder he’s behind on his payables. From a practical approach, we would expect to see these numbers reversed, and if that was the case the current ratio would be a healthy 2.25:1. Unfortunately, the ratio is 0.44:1; a disastrous ratio under any scenario.
Like most sales, Bob and the broker he is working with intend to make this an asset sale, meaning that Bob will keep all his accounts receivable, cash in the bank, etc. However, he will also assume responsibility for paying off all his accounts payable as well as other current liabilities, including credit card debt, a line of credit, accrued property taxes, and the current portion of an equipment loan. Making matters even worse, Bob must also pay off a long-term note payable of $181,000 in order to be able to transfer the equipment he is selling free and clear of any debt. Remember, you can’t sell equipment (the assets) unless you own them!
Believe it or not, Bob’s balance sheet, even though it lists a total net worth of negative $43,815, is still in a lot better shape than many I see.
Balance Sheet Warning Signs
On rare occasions, especially when a company is flush with cash, owners will borrow money from the business in addition to taking out a paycheck. They will treat this withdrawal as a loan, thus it will not be subject to payroll taxes, etc. Typically, this will be listed as a note receivable from officers. Unfortunately, this distorts the balance sheet because these receivables are rarely collected by the company.
The reverse situation also occurs. Owners often make short-term loans to their companies in order to make a note payment or even fund a payroll. The loan appears on the balance sheet as a note payable to officers. More often than not, these types of notes and loans rarely get paid back. Owners rationalize that they will be able to recover these funds when they sell the business. Guess what? That’s not going to happen. So if you want to collect on these loans, start doing it now.
If you would like me to check out your financials, send them to JohnStewart@quickconsultant.com or fax them to 321-727-2166. I don’t charge to look at them and they are treated with the strictest confidentiality. Maybe I’ll spot something you are overlooking, and if I do I will let you know.
New Video Released
I’ve just finished the first in what a series of free educational videos. It deals with one of most important ratios in our industry—sales per employee (SPE). To view the video, visit www.quickconsultant.com or watch it at www.MyPrintResource.com/video/10384116.