Author Larry Hunt explains why so many Printing Businesses end up being valued so much lower than owners expect!

Based on some of the responses I’ve gotten to our new book “Print Shop For Sale,” there are many companies who are going to be very disappointed when they try to sell their shop and retire. For example, a Texas company wrote to me in shock that our book valued his company at only $328,000 when he thought it was worth at least $1,000,000 and possibly more.

He’s doing $1,600,000 in annual sales and has about $200,000 in Net Assets. Unfortunately, his Net Owner’s Compensation is low at just 9%. He scored a 4.0 on our excess earnings multiplier questionnaire. To make a long story short, he felt that a buyer should pay him for his Net Assets and at least $.50 on the dollar for his sales volume. He argued that a high volume shop, like his, was capable of producing big profits for an owner.

I agreed that his high sales volume shop definitely had potential, but buyers typically don’t want to pay for “potential”. They are looking for past performance to prove that the results are possible. Like in the example shown above, a 9% Net Owner’s Compensation produces very little Excess Earnings and that is what most buyers are looking for. In this case, there was $32,000 of Excess Earnings. Based on his excess earnings multiplier rating of 4.0, a buyer would pay 4 times the excess earnings ($128,000), plus $200,000 for the Net Assets, for a total of just $328,000. Until it can be proven that the $1,600,000 can generate more profits, most buyers are reluctant to pay much more for these sales.

But, look what can happen if profits are improved before the sale. If the Net Owner’s Compensation is improved to 15% from the current 9%, the business value more than doubles to a total of $712,000. If there truly are good profits to be made from those $1,600,000 in sales, the current owner has to do a better job of proving it before putting the company up for sale. That’s the moral of the story.

Most people have time to make improvements before selling, but it’s important for them to find out what their business is worth now so that they can start to work on those improvements and build that business value.