PrintingNews.com

You could not write the history of the printing industry during the past 30 years without devoting near parking-lot size space to the frequency of buyouts, mergers, and reorganizations of companies nationwide. In 1980 there were roughly 55,000 printing companies if you included all the “mom and pop” and small instant printers in the mix. Industry estimates at the time suggested there would 40,000 in 1990 and only 15,000 by the turn of the century. Although there can be much dispute over how accurate that prophecy actually was, no one will dispute how much buying and selling and valuing has gone on in our industry.

I fix printing companies. That’s what I do. However, among the licenses I carry is that of a business broker—a person who helps owners buy and sell businesses. And I receive few questions more frequently than ones concerning how the market value of a business is determined. Whether you are thinking of buying, selling, or reorganizing (or just want to make your company as strong as it can be), here are—pretty much in order—seven basic steps for how a business is valued.

1. Black Ink
What is the net income of the company? This one will surprise no one. We are talking about pre-tax profit here. In the last analysis, we are in this industry to make a buck. Hence, the blacker the bottom line, the greater the value of a business.

Be careful here. Make certain your accountant (even if that’s you or a family member) constructs a profit and loss statement that shows the true profitability of your company. By that I mean one that includes only expenses that are absolutely tied to the business. Most businesses are rife with what I call “gray expenses.” Gray expenses are those that may be accepted by the IRS but are not necessarily critical to the business in question. Traveling, entertainment, even medical and insurance expenses can be gray. Get those out.

“Does an unprofitable business have no value?” you ask. Not necessarily. I can tell you as one who does turnarounds, that if there is evident potential for turning it around it may have real value. Besides that, there is the Hardware Store, my next point.

2. The Hardware Store
The printing industry is capital-intensive. Heavy equipment dollars need to be spent to make your operation competitive

That hardware (and not so hard-ware) has value. It is called tangible assets. Value the equipment at cost and add that to the valuation. A buyer wants a turnkey operation, not just a profitable enterprise grinding away with equipment in disrepair and needing replacement.

There are businesses that are currently not profitable but not due to any recession, but rather to recent equipment acquisition. Such businesses may become profitable once the sales and marketing capitalizes on the efficiencies of that equipment.