About News & Notes

I decided recently to add this section so that I have some place to go and write my thoughts and rants for the moment and share them with friends. Some of them may be in response to one or more calls I have received, while others may deal with more personal reflections. I haven't decided in what order they should appear and whether I should append new notes to the top or the bottom, so to solve that problem I am going to use a 3-4 word subhead, followed by the date it was posted.

Business Valuations by Amateurs are Dangerous - 7-21-08
Recently I was retained to prepare a valuation on a business with annual sales in the $5 million range. The difference this time (as opposed to other valuations I have done) was the owner wanted to know retrospectively what the business was worth at the end of three different years, 2005, 2006 and 2007. The reason for the request was complicated but basically it involved the buying out of two partners... one in 2005 and the other one who wants to be bought out this year. Both partners were related to the owner via families ties. The problem is that while the business was doing about $5 million in 2005 it was not very profitable at all and was burdened with extremely heavy payroll costs. One of the partners who owned 10% and who had helped the business grow to that level decided he wanted to sell his portion.

Fine, so far. Well, the owner asks a business broker (possibly related to his franchise) to help provide an estimate. With virtually no reliable logic or data given, the broker valued the business at $4.5 million. Thus the partner's share was worth $450,000 and a note was negotiated with a payout over 15 years. The real suffering to be caused by this erroneous valuation would not really rear its head until three years later. Now, move forward to 2008 when a second partner who owned 30% of the business also decides to leave. Assuming he used the same valuation approach as in 2005, that would mean he would have to pay the 30% partner $1,350,000 and it didn't and doesn't take much of a genius to realize that when a business like his is in the 5-8% profit range that there is no way in hell that the business can afford to buy this partner out - certainly not based upon a value of $4.5 million.

Happy ending? Nope. My valuation for 2005 was $800,000 and $1.6 million at the end of 2007. Yes, 2007 valuation was much better and higher than for 2005, but both are dramatically (about 80% lower) than the valuations he received in 2005. Profitability can easily be improved in this business and thus its value but that's not the issue now. I don't know how the original broker ever arrived at the $4.5 million figure, but of course that's water under the bridge.. I do know how my valuation was calculated and I am very comfortable..... could it vary by plus or minus $100,000 to $200,000 in either direction. In any event this owner has some serious problems to deal with and no simple solutions.

Urban Legends & Political Distortions -  7-18-08
A couple of days ago someone forwarded to me one of those typical emails that asks you to read what is enclosed and then pass it on to your friends. I can't stand them because the original author, as well as the person who is forwarding the message, typically has a political agenda designed to distort the truth at almost any cost in the defense of their own political leanings. The email I received was clearly meant as a blatant attack on Barack Obama. It claimed to list several quotes from Obama's book The Audacity of Hope including this one: 'I will stand with the Muslims should the political winds shift in an ugly direction.'

Wow, that sounds pretty damning doesn't it.... Ok, now read it in context and tell me that the above quote wasn't totally distorted and taken out of context:

Actual quote: "Of course, not all my conversations in immigrant communities follow this easy pattern. In the wake of 9/11, my meetings with Arab and Pakistani Americans, for example, have a more urgent quality, for the stories of detentions and FBI questioning and hard stares from neighbors have shaken their sense of security and belonging. They have been reminded that the history of immigration in this country has a dark underbelly; they need specific reassurances that their citizenship really means something, that America has learned the right lessons from the Japanese internments during World War II, and that I will stand with them should the political winds shift in an ugly direction." (page 261). 

Printing Businesses for Sale in South Florida? -  6-25-08 (revised 7-18-08)
If you own a printing firm in South Florida and are considering selling I may have a couple of very qualified buyers who would like to talk to you. The buyers are prepared to pay a significant amount of cash, but they are also looking for a solid business with an even greater potential for growth. Based upon my knowledge, I suspect the prospects are interested in purchasing a business with annuals sales in the $700,000 to $1,250,000 range. Based upon those sales, the business has to be priced fairly and for that we would expect to use the formulas and approaches used in Print Shop For Sale, the book that Larry Hunt and I have authored. It isn't an ego thing, but rather a belief that it is by far the best, most logical and fairest approach for establishing a value for a business. Contact me at qkconsult@aol if you have any interest or know someone who does. Thanks.

New Research Studies in the works -  6-26-08
Although nothing formal has been agreed to yet, I believe we will be surveying the industry sometime late this summer or early fall in order to produce/publish a brand new study on Bindery Services and Pricing.

Also up in the air is a new Industry Pricing Study and whether or not it is time or necessary to start publishing a Mailing Services Pricing Study on a more annual basis rather than every two years as it has been recently. Your thoughts and input are always welcome.

Quitting Smoking - 6-27-08 (updated 7-18-08)
It's always sad but funny when someone tells you they've quit smoking and then follow it up with some cute remark about how they have quit 15 times before and started back again. Well, that's sort of me. I figure I probably have smoked about half of my adult life. The longest period I ever quit was for 14 years and it only took a week or so of gradually smoking again to become fully addicted. I followed that up with another nine year stint of no smoking and then the pattern would continue, quitting and then starting again, quitting and starting.

If there is anyone out there who is still smoking I will pass on what has worked for when it has worked, and it has been a combination of Zyban and the patch. Using these two together have been proved by all of the studies to be the most effective. You start taking Zyban and least a week to ten days before your "quit" date. The best day to quit is a Sunday, at least for me since it involves the least pressure. I try to avoid coffee for the first few days as well. The bottom line is you really have to want to quit. Unless you are a smoker you just don't understand how addictive the habit can be. I am wearing the patch right now and take Zyban (actually Wellbutrin which is the very same drug but much, much cheaper) twice a day. It has only been three weeks so far so no big deal, unless you are a smoker, and then it is a lifetime. Enough for now. 

Update: My quit date was Sunday June 8th and as of today (July 18th) I have still not had a cigarette... it is a day by day thing... sort of like being an alcoholic.... even if you quit drinking the best you can describe yourself is as a "recovering alcoholic." I will always be a "recovering non-smoker."

Clarifying Sales Per Employee (Once again!) - 6-27-08
Even after all the years of writing about Sales Per Employee and its use as a ratio I still get calls, even from some of the "experts." A consultant called me the other day and asked me to clarify how to treat a sales rep who was not strictly on the payroll and since he wasn't really paid then he shouldn't be counted in the SPE formula which is simply: Total Annual Sales divided by Total Number of FT equivalent employees.

The answer is that Sales Per Employee has nothing whatsoever to do with salaries and wages. If you look at the formula it doesn't even mention that. SPE is a productivity ratio, plain and simple. An average SPE these days is approximately $125,000. Companies in the top quartile in terms of profitability average $135,000 SPE, while those at the bottom average around $118,000. However, a closer look at the industry finds many companies with SPEs of $100,000 or less and that is a disaster.

So back to the original question. Yes, you count the sales reps as one of those bodies. Well suppose you have two sales reps but both are on commission. One is doing really well, but the other one is just terrible, barely making minimum wage... "But hey, why should I count him, since he really isn't costing me anything unless he sells something."

I would strongly disagree. He is costing you all those sales that would be brought in by a more effective, better trained sales person so he is costing you and so long as his sales remain low it will show up as a lower than normal SPE. But even that response is begging the question. The bottom line is that SPE is a simple way of saying how many "bodies" it takes to produce $XXX in sales. We know for a fact that some companies doing approximately $1.2 million in sales are producing those sales with slightly less than 9 FT employees. At the other end of the spectrum we know there are companies producing the same type of sales but employing or utilizing 11-12 employees to produce the very same in sales! Enough said!

Contact Information
Telephone: (321) 727-2444
Fax: (321) 727-2166
Address: 2110 South Dairy Rd., Melbourne, FL 32904
Contact: John Stewart at QKconsult@aol.com