Quick Consultant: Sales Analysis Produces Amazing Statistics

First, a very quick note: If you reading this issue of QP prior to February 10 you may still be eligible to receive a free copy of the 2012-2013 Wage & Benefits Study published by NAPL. To participate go to: www.surveyadvantage.com/2012NAPLWages.

At this site, you will find instructions, a worksheet, and the online survey. If you’re reading this after February 10, then I’m sorry you missed this invitation. We did, however, send out approximately 30,000 email invitations as well.

This year’s survey covers wages and benefits for 19 key positions in our industry, ranging from general managers, CSRs, and press operators to graphic designers, digital press operators, and mailing & database specialists.

A key section of the survey deals with the latest in compensation practices for outside sales representatives. The final study will report experience levels, sales produced in 2011, and the wages and commissions received as well as methods used to calculate these commissions. This section alone will be worth the entire price of the study.

Oh, one more thing: this year’s survey will also deal with a host of employee benefit issues, including healthcare costs and what the average employer plans to do in the next 12-18 months.

 

Analysis of Industry Sales

I just finished an analysis of my last 18 valuations. I did it primarily for my own benefit, but now I want to share it with readers. The valuations were performed for both independents and franchisees during the past nine months or so. The annual sales of these companies ranged from $368,000 to $2.6 million.

The statistics amazed me, not because they were out of line with the industry, but rather how closely they matched past reports. Here’s some good news: out of the 18 companies analyzed, two of them were actually valued at a price greater than their annual sales. That is quite rare, but not impossible.

One was valued at 146 percent of sales, while the other came in at 109 percent. The 146 percent company has entered on-demand, short-run book publishing in a big way. It has a major Web presence and its level of productivity and sales per employee are simply off the chart. Its adjusted owner’s compensation was approximately 32 percent on sales of $3.9 million.

What about the rest of these firms? Typical valuations (as a percent of annual sales) came in at seven percent, 22 percent, 27 percent, 62 percent, and 83 percent. If you’ve read any of my previous columns on valuations you know I hate to quote valuations based upon annual sales because it is not an accurate method for determining a selling price. Total owner’s compensation is the key, almost sole determining factor in arriving at value.

By the way, please do not attempt to value your business based on past or projected future performance. Buyers today want to know what your company is doing today. Forget weighting of sales or ethereal forecasts. Most buyers will not go for those types of numbers.

I chose to eliminate the top two and the bottom two in my data and analyze the remaining 14 firms. As it turned out, even had I included all 18 firms the averages would have changed very little. Here are some of the findings:

 

INDUSTRY SALES AND KEY RATIOS

 

14 Companies Entire Industry*

Average 2011 Sales $1,076,650 $1,016,939

Average COG 30.0% 29.5%

Average Payroll 34.5% 32.9%

Average Overhead 34.6% 26.9%

Average Valuation $571,105 NA

Owner’s Comp. 12.4% 10.7%

Bal. Sheet – Gain/Loss $(206,381) NA

* As reported in the 2010 NAPL Benchmarking Study.

 

A couple of special notes on the above data: First, the owner’s compensation for the 14 companies reported is the result of special adjustments and the addition of perks not typically included in the owner’s compensation, as reported in the NAPL Benchmarking Study.

Second, note that we included an item called “Balance Sheet—Gain/Loss” in our table. Remember, the value established for a business, just as the value established for a home, does not consider outstanding first and second mortgages, loans, lines of credit, and other liabilities—all of which are typically the responsibility of a seller in an asset sale.

While the average business in our analysis was valued at $571,105, the average company would only net about $364,724 after paying off the $206,381 in balance sheet debt.

 

Senior contributing columnist John Stewart is president of Q.P. Consulting Inc. Contact him at 2110 S. Dairy Road, West Melbourne, FL 32904, call 321-727-2444, email JohnStewart@quickconsultant.com. Be sure to check out John’s videos and his blog at www.quickconsultant.com.

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