Rise and Fall of Mallard Press

I normally don't find a lot of time to read a lot of industry publications, but I strongly want to urge readers a two-part article that appears to be making the rounds in the printing industry.

Titled "The Rise and Fall of Mallard Press," the interview appeared in a special interest newsletter titled Print CEO which in turn is published by Whattheythink.com. This article is well worth the 15-20 minutes it will take to read.

Payroll Costs - What's Included?

Just had a printer call me with a question as to who or what should be included under payroll costs. Specifically, she was referring to a statement that I made in Quick Printing Magazine that suggested a payroll ratio of 26-28%. She asked what about salaries and commissions paid to outside sales reps.

My answer was pretty straight forward. All salaries, wages and commissions for all employees, excluding a single owner, should be included in this calculation. And that of course would include outside sales reps.

Remember, that employer's FICA, medicare, workman's comp., health insurance, and unemployment payments should be included in this calculation. If the expense wouldn't otherwise exist but for the fact that you have employees then it should be included in or under payroll. By the way, that would even include payments made to outside payroll services or money spent internally to generate pay checks.

Large Customer Impacts Business Value

Within the past two months I have encountered two different firms, each of which had one specific customer that accounted for approximately 50% of all sales!

One case involved a $575,000 company with one customer accounting for $250,000 of those sales; In the second case, the firm had annual sales of $1.55 million, with a single customer accounting for approximately $700,000! Almost hard to believe.

Both firms are indeed profitable, with one qualifying in the top 25th Percentile in terms of profits. However, the vast majority of potential buyers out there will simply not consider a company like this, almost regardless of offering price, when a customer represents that large a percentage of sales.

In one of the situations there is 3-year printing contract up for renewal. If the contract is renewed it would make the purchase a bit easier to swallow, but most printing contracts that I have seen are not that rock solid. Even if we had a contract in place, a smart buyer would make the sale contingent upon retaining this customer and/or the length of the purchase contract would equal the length of printing contract. Also, if the buyer could not finance the purchase out of excess earnings during that same period of time then he probably should walk away.

In the other situation, there is a sibling who has been working for the business for more than 15 years and the parent's are ready to sell. However, there is a huge difference between what the father thinks the business is worth and the sibling who wants to buy the company. By the way, the sibling is the one responsible for attracting and maintaining the $700,000 account.

In a real sense, the sibling has the parent over the proverbial barrel and lately discussions as to the purchase of the business have gotten quite heated. What is really surprising is that neither the sibling or the parents have discussed the value of the business or its purchase in the past 15 years!

So now what happens. Stay tuned...

Good Feedback on Brokering

I have received an unusually high number of comments on my January 2010 column titled, "Brokering - Hey It's All in the Numbers!"

The column clearly noted that the amount of gross sales that you broker is not the key factor in determining your profitability, but rather how you handle and disperse that gross profit among the remaining expense categories (fixed or variable) that must be covered.

In almost all cases involving brokering, the more you broker out, the lower the gross profit, and the lower gross profit the greater the necessity to reduce expenses in either one or both of the remaining company expense categories - payroll and/or overhead.

Can this be done? Absolutely, and a letter I received which is reproduced below illustrates that you can broker out and still be quite profitable.

"Dear John, I really enjoyed your article in this month’s issue of Quick Printer. I do have a question though, what is the average commission percentage that is paid to the sales reps on the gross profit? - i.e. If there is $1000 gross profit on the job, what percentage goes to the house vs the sales rep. Sales reps are commission only at my shop. I am the owner of XYZ Printing & Graphics. We are a small 6 person printing shop in Northern California (location has been fictionalized) and our sales are about 1.85 MM. We broker about 50% of our work. Thank you for your insight."

My response to his specific question is that I would need to have more info since a $1,000 gross profit might represent a 50% gross profit or a 10% gross profit, so in terms of dollars alone I could not say.

However, what caught my eye was the $1.85 million in sales being produced by six individuals. Assuming the owner is included in that number the firm's SPE would be $308,000; Even if the total number of employees increased to seven (including the owner), the SPE would still be $264,285! In either case outstanding SPE's, even though 50% of all sales are brokered.

Now, this owner did not mention his net profitability, but based upon the calculated SPE's I am assuming that his company is quite profitable, since there tends to be a pretty clear relationship between SPE and net profits. It may not be linear but it exists nonetheless.

Fraudulent Veteran's Organizations

Nothing, nothing gets my blood boiling faster than to stumble upon an organization claiming to be non-profit and raising money for veterans when the facts prove otherwise.

I wrote an article a couple of years ago and today that article prompted a call from the Veteran's Administration in NY. They called and asked me what I knew about the The Veterans Alliance Service Center or the American Veteran's Alliance. Have they not heard of the Internet?

I told them I knew enough to call both of these organizations fraudulent to the core and anyone who has ever throughly checked out these organizations would know that to be true. When you don't list a mailing address, when you don't publish annual financial reports, and when you give less than 50% of what you raise to veterans then in my opinion as a veteran you are perpetrating a fraud - plain and simple!

What is really sad is that these organizations and others as well (most try and use the word veteran or soldier in the name) continue to operate and raise money all around the country. How do they do it? it is simple.

They approach the manager of a grocery store and say they are raising money for veterans. Most of these managers are encouraged by their corporate headquarters to become involved with the community so when the Boy Scouts, the Girl Scouts, the local softball league or even a local gymnastics team wants to set up a table outside the store they almost always get permission to do so. The same holds true when these managers are approached by someone claiming to represent veterans.

The mere fact of being allowed to collect money outside of the grocery store automatically acts as an endorsement of the organization. Unfortunately, some of these organizationa are not what they seem, certainly in the case of these veteran's groups.

What is really sad is to see people leaving the grocery store and dropping $5 or $10 into a jar believing it will go to help veterans... the only person that money is going to help is the guy working the table as well as the person he is working for... that's about it... in a few cases they may donate 4% or so to keep it legal...

So, if you are Ok with giving $10 to one of these groups knowing full well that only 40 cents or so may end up helping a veteran then be my guest, but you are both a fool and doing a disservice to veterans around the country.

Working for the "Family"

A couple of recent consulting jobs reminded me of an on-going problem I have observed in this industry - family members, typically second generation, working and managing the businesses (for parents and/or parent-in-laws) with no written agreements as to how, if ever, ownership of the business will be transferred or sold to the next generation.

A classic case, repeated many times, is the best described as an example with fictitious names.

Steve married Karen 19 years ago. Karen's parents owned Quickie Print. About eight years ago, Steve was invited to join Quickie Print and soon became its manager. Under his direction and management, the company experienced healthy rates of growth and profits, with sales in 2009 projected to top $1.6 million. Steve has been well rewarded with an excellent salary package and benefits.

During the past five years or so Steve has discussed with his in-laws on numerous occasions the possibility of buying the business. The in-laws, especially his father-in-law, have always tended to be vague about what they thought the business might be worth, or even whether they were really interested in selling it.

About two years ago, Steve's in-laws decided to semi-retire to Colorado, drawing out healthy dividends from the business. In the meantime, Steve continued to manage the business full-time. Buying the business had slipped to the back burner.

Well things changed dramatically about six months ago. Steve and his wife got a divorce. The divorce was amicable, but it highlighted Steve's tenuous position in the business. He wants to buy the business, but his father-in-law, when pushed for an "asking price," has mentioned a totally unrealistic price.

Now, what does Steve do? In one sense, he has the in-laws over a basket. For all intents and purposes he is the business and if he left and took some accounts with him Quickie Print might not survive, short of the in-laws returning back home and taking over all management responsibilities. On the other hand, Steve has invested his heart and soul into this business for the past eight years but still has no stake in it whatsoever - he's just another employee and he has no equity in the business.

Comments - In eight years neither party really sat down and put in writing how the business might be valued and when and how the business might be sold. Sad! Steve is in full-charge of the business and makes a healthy salary but has absolutely no ownership stake in the business.

If you recognize your own situation in the above, whether you are a son, daughter, daughter-in-law or have any similar relationship and you are working in a business owned by parents, you need to clarify exactly where you stand, when you can purchase the business, and agree on a specific method for valuing the business. Of course, the same situation would also apply to a long-time manager who has been promised time after time, as an inducement to remain with the business, the opportunity to buy it "some day." Days turn into months, and months turn into years and still nothing is put in writing.

One good start, at least in terms of valuing a business, would be to purchase "Print Shop for Sale." Another idea might be to email me and discuss your specific situation. I will be glad to help if I can.

Employee Theft Leads to Company Closure

EUGENE, OR—An ex-bookkeeper of a now-defunct printing company faces upwards of 100 felony counts for allegedly bilking the firm of more than $1.5 million, an act which may have contributed to its demise.


I just read the above in an email blast from Printing Impressions. I really have to wonder, despite the fact that I know this happens hundreds of times a year to printers around the country, why the owner didn't suspect or catch the thief a bit earlier.... you know, maybe started wondering about where $250,000 had gone, or maybe the first $500,000 or even $1 million.

One thing is for sure, I will bet (based on profiles of employee thefts of this magnitude) that she was a long-time employee, very dedicated and if true to form probably didn't want to take time off for vacations. Of course if you've working for a firm from which you can steal $1.5 million before getting caught you ought to be pretty loyal and dedicated!

You can read more about the story as it appeared in PI by going here:
http://www.piworld.com/article/former-employee-charged-15m-theft/1?sponsor=newsletter/pi-weekly

I too can see Russia from my back door!

I just had cataract surgery performed on my right eye yesterday, and I mentioned this to a conservative friend of mine.

My friend emailed me back suggesting that if my surgery went well I would probably be able to see things much clearer now and would thus, by definition, probably become a Republican!

I wrote him back and said he was right. I can now see so clearly that when I go to the back of my house and look west across the Intercoatal Waterway I can see all the way to Russia just like Sarah Palin.

P.S. I know a lot of soccer moms and most of the ones I know are a heck of a lot smarter than Sarah Palin. In fact, she has given the term "soccer moms" a bad connotation. Just my thoughts.

P.P.S. By the way, cataract surgery and the medical advances it represents is nothing short of amazing. To be able to operate on such a small, complex organ and to be able to do so on an outpatient basis with little or no pain whatsoever is a testament to how far we have come in medicine in such a relatively short period of time.

Significant Statistical Changes Expected

We are in the early stages of preparing the 2010 Operating Ratio Study for the Printing Industry. Although the availability of customized one-on-one reports (introduced for the first time in 2008) is still in question, the study itself will be published in full as it has always been.

What is both exciting and intriguing will be uncovering changes in levels of productivity and sales wrought by the changes in the economy during the past 24 months. Thanks in large part to the huge data base available to NAQP and Q.P. Consulting, we will be in a unique position to provide special insights as to how the economy has impacted printers and different ends of the spectrum. Specifically, we will be comparing printers of all sizes and types and examining how the economy has impacted their sales and profitability in the past two years.

I can only speculate at this point, but I would surprised if those previously in the top quartile will continue to report healthy owner's compensation in the 22-24% range. I won't be surprised, however, if these same firms report either minimal sales growth or even some decline. The smart firms, I suspect, will have concentrated on profitability. I also suspect that the lower profit firms at the other end of the spectrum will have concentrated their efforts sales at the expense of profits, and in many cases failing at both.

For those who participated in the 2008 survey and received a customized report, I would be interested in your input as to the overall value of those customized reports, as opposed to the more generalized ORS reports published previously.

Great Time For Setting Goals

I love the holidays because I can always find some "quiet time" to sit down and reflect on the year just ending as well as to project what changes we might be able to bring about in the coming year - in this case 2010!

You shouldn't have to wait for an accountant to get a preliminary P&L and balance sheet for 2009. Even an 11th month statement will provide you with all the data and ratios needed to set some new goals for 2010.

You need to take a yellow highligher and circle key ratios such as cost of goods, cost of paper, total payroll expenses, overhead, etc. and then compare them to what the leaders in this industry (in your sales range) have reported.

Where do you get this information? Well, I hope you have a copy of NAQP's 2008-2009 Operating Ratio Study. There is no more important or useful document than this study and if you don't already have a copy you should order one today from NAQP. Call them at 1-800-234-0040.