Latest News

Rasmussen’s 3rd top tip – be objective and develop options

Tuesday, 24 April 2012
By Print 21 Online Article
Tagged with:

Owning a printing establishment is a lonely business.  Most businesses have less than 20 employees, so it’s usually up to the owner to make the key decisions, frequently with few if any people to confide with. It is commonplace that information / advice is sought from the accountant, who they see a couple of times a year, the family, who get the routine daily update, and friends and or suppliers in the industry.

So the really tough questions, like “how am I going to exit this business?” are put in the too hard basket till the last minute, and decisions are made with a lack of real objectivity or without due consideration of the market realities.

The person they usually turn to, to supply guidance and advice to these hard questions, is their accountants, their trusted advisor. And therein lies a potential problem – because rarely do the accountants understand the business sale market. They don’t have comparable sales evidence, market values of plant and equipment, knowledge of the buyer’s needs, and industry knowledge.

What the accountants do have, however, is objectivity in areas such as tax, cash flows and compliance.  So, they should be included in the process, but should generally not be the only external party involved in the exit plan.

An extreme example I came across was where I appraised the business at $1,200,000, the accountant appraised it at $3,000,000. False expectation was created. What the accountant relied on was written down values of equipment, the fact that the vendor had been in the industry for many years, and over the top multiples.

Accounting formulas don’t have check books attached

I’m always wary when businesses have been valued solely on the numbers and formulas. It is far too simplistic that values are based on multiples of profit. The owner, more often than not, gets a false sense of real value, and plans accordingly.

There are obviously numerous other considerations to establishing a business value – client type, client mix, client spread, client growth potential, staffing, machinery, management, sales personnel, building leases, and market trends, market niches, buyers in the market, and terms of sale to name just a few.

A good friend of mine works as a car wholesaler. When buying cars, sellers frequently say to him, “but the Red Book Guide says my car is worth X, why are you only offering Y?”  His response is always, “the Red Book Guide does not have a cheque book, I do!” i.e. it does not matter what any formulae says the business is worth, it’s what someone is prepared to pay.

What’s going to happen to your business’s sales in the “twilight period”?

By ‘twilight period’ I’m referring here to the four years leading up to the planned exit of the business. In this period proprietors should be taking a realistic and objective view of what will happen to their business, in particular what will happen to their sales and profitability. Common mistakes made are:

  • Thinking they have seen the worse and sales and profits will pick up
  • Thinking their top clients are ‘safe’
  • Thinking new clients will enter at the same rate as in the past

The norm I see when I start to market businesses where the owner is wishing to retire is that in this twilight period most businesses have experienced falling sales and falling margins, top clients have left and there are very few new clients. The proprietor has also run out of puff, they just want out.

Had they taken a realistic view of what would occur, they would have made other decisions. Staying as is in this period is possibly the worst decision to make.

There are of course exceptions to the rule. The question those entering this twilight period should ask is,  “how am I going to avoid being in the norm? (falling sales, falling profits, losing clients, unable to find new clients)”

Because if you can’t provide an objective and realistic answer to this question, the result of being in the norm, is lower business value when it comes time to sell. Planning is imperative, but a plan based on unrealistic goals, is a wasted exercise. Be objective, be realistic, but do plan.

Develop Options

In the twilight period you should consider different options. Your business, in most circumstances, needs to change to get the best end value.

One option you may consider is to trade on, take the money out, run down the equipment. In many instances this is the best option. Many owners I speak to after I have appraised it say “if that is all my business is worth now, I’m better off trading on, taking as much profit as I can, and in 3 years, I’ll sell and take what it’s worth”. I usually respond that this is a perfectly good plan, on the proviso that you can take the profits you think you will, that you don’t run out of puff, and that when the time comes to sell, you stick to your plan and sell for what it is worth. i.e. you can’t have your cake and eat it too. If you’re going to milk the business, great, but don’t expect a great return after you’ve done it.

I encourage you to develop some different options, with some a little out of the square.  And then work through each, with a good dose of objectivity. Where possible work with the facts, take off the rose coloured glasses and work with the market realities. Engage those in “the know.”

One thing of which I’m certain –those proprietors that develop objective and realistic plans for the business in the twilight years,(and implement them), will certainly have the best chance of reaping the greatest rewards, when it comes time to exit.

Richard Rasmussen is the principal of Ascent Partners, a business that within the Australian / NZ printing industry, offers Business Appraisals, Business Sales and Business Consultancy services. He can be contacted via the web site, or via phone – 1300 887 648 /0402 021 101.

One Response to “Rasmussen’s 3rd top tip – be objective and develop options”

  1. April 25, 2012 at 12:07 pm,


    One option for thinking outside the square is to consider print managers who are allies and free sales people rather than competition.

Comment on this article

To receive notification of comments made to this article, you can also provide your email address below.