What’s Your Business Worth?

Years ago, while operating a community newspaper and print shop in British Columbia, our year-end was the time when we would huddle around the table and appraise the value of our investment. We would employ a number of industry formulas, discuss influencing factors like goodwill and play what-if scenarios with potential buyers. Each year the value of the business grew and we were comforted with the anticipation of that day when all of our efforts would leave a large wad in our pockets.

Fortunately, we saw that day in the early 1990’s when competition between two newspaper groups put us in an enviable selling position. So we sold out lock, stock and barrel: the equipment, the real estate, the goodwill, the staff … heck we even got a bonus for signing. But things are considerably different today.

In the old economy, a business owner could find solace in knowing that the long hours and minimal pay would eventually pay off. They were building an asset and short-term pain was offset by the long-term gain. They built with a sense of permanency and risk was calculated over the long haul. Not only did the value of the business include the furnishings, equipment, inventory and real estate, but also considered were soft assets that so often make the business what it is: the skill and experience of staff, the customer loyalty, years in business and most importantly, the business image and reputation.

Today, selling a business, particularly a small business, is considerably more defined. Changing technology, a well-trained and mobile labour force, fierce competition, the low cost of entry and price-conscious consumers have all impacted the value of a business. Take a print shop for example.

Even a small print shop used to be a considerable investment. A simple AB Dick 360 and a Compugraphic typesetter would require a sizeable cash outlay. Add to that the darkroom equipment, cutter, folder, jogger, etc. and there would be little change on a $50,000 investment. However, the advantage was that the cost of entry kept competition from entering the market.
The skill level required to efficiently operate that equipment was another major investment for the shop owner. Many aspects of the printing operation were intuitive and the result of experience, therefore finding and retaining good employees was a significant expense. Real estate was another major consideration.

But technology has changed that paradigm. For less than $5,000 you can have all the computing power necessary to produce the most demanding prepress project. Publishing software has substantially reduced the learning curve required to produce most printing jobs. Digital printing is becoming more mainstream and outsourcing larger, or more involved projects, is regular fare in the industry. Most significantly, a large part of printing demand is now consumer-driven, whose standards of excellence are far less than those demanded by businesses. Just take a look at the proliferation of shabby printed materials that flood your mailbox!

Print shops, once a cornerstone of the community, are now on every corner in dime-sized premises. Their competition sits next to most home computers; innovative printing devices with output quality that satisfies most people. Big box stores, printing kiosks and ready-made templates have all taken their slice of the market. Don’t want to leave home? The Internet has thousands of sites that will design, print and deliver your print project right to your door.

So what’s a print shop worth? For owners who have toiled over the years building their asset, the reality may be hard to swallow. Supply and demand still drives the economic engine, and unfortunately for the printing industry, supply far exceeds demand. Planned obsolescence used to drive growth in the old economy but today, technological obsolescence is the whipping boy.

Print shops are not alone in this dilemma. Many successful businesses are managed from a small home office where the owner provides brokering or middleman services in the supply chain. What used to be an asset-based business is evolving into an intellectual –based asset. And as the cost of doing business plummets, so does the resale value of the business.

Knowing the value of your business is important; it provides a solid foundation for decision-making. But what you think it’s worth and what reality says it’s worth may not coincide. Don’t postpone finding out the truth!