Questions to Ask About a Quick Printing Business For Sale
If you're planning to acquire a quick printing business for sale, you probably know most of the questions to pose to sellers, so you can learn, for example, terms of the lease, whether employees are covered by union contract and value of the equipment.
But there are more probing questions to ask so you can avoid a company that looks good on the surface, covering hidden problems. Three issues to explore in depth when evaluating companies in this industry relate to:
1. Recoverability--Like most companies in the current economic environment, some or all of the quick printing business for sale offerings show a decline in revenues over the past couple of years. This industry was hit hard by the recession as customers--many of them small businesses--cut back on their printing orders or even closed their doors.
It's critical to know which of these categories applies to the majority of clients for a business being considered as a purchase candidate. The answer to questions on this topic will reveal important clues about how quickly and effectively the company will recover as the economy gets healthier. Clearly it's more encouraging to learn that most customers are still in business and will have more printing requirements as their fortunes improve.
2. Income or inconvenience--While a quick printing business for sale looks particularly appealing if it incorporates other enterprises like scanning and large format services, those operations don't always generate adequate returns to justify their equipment and employee costs. The seller should be asked to separate, from company's totals, the income and expenses associated with each "profit" center.
The statement that peripheral enterprises are profitable should be proved with the figures. And if the seller points out how associated activities attract customers for the main part of the business, further questions should be asked to determine if those claims are rooted in assumption or in fact.
3. Comparing with industry averages--The buyer evaluating businesses in this industry and armed with knowledge about some common ratios, is able to ask the right questions. If the seller shows annual earnings before interest, taxes, depreciation and amortization (the EBITDA formula widely used in analyzing business opportunities) that fall outside the range of 10% to 20% of gross revenues, some careful analysis should follow.
Certainly not all companies in the industry meet that ratio. But knowing the number makes for a good starting place to form questions about the company's profitability.
An informed buyer knows to investigate the reason a company is, for example, showing earnings of seven-and-a-half cents for every dollar generated. Is there a fixable problem such as a bloated staff? Or does the pricing structure, necessitated by the highly competitive environment, mean the company is doomed to underperform?
Meanwhile, the seller who reports keeping 25 cents of every dollar generated, may be "forgetting" to mention that, for example, the business has a special rent deal from the seller's mother-in-law, or that relatives are "employed" in the company but not paid.
Alternatively, the quick printing business for sale you're investigating might enjoy better-than-average earnings because it has developed just the right menu of services offered at high profit-generating prices to a loyal following of affluent customers.
Why are the company's earnings above average? It's the buyer's job to find that out.
And the seller of a particularly profitable company might be justified in setting an asking price higher than 50% of annual gross revenues--the rule-of-thumb valuation for this business.
One such justification can be the seller's willingness to finance 25% to 35% of the price.
In any event, if you understand what a buyer typically pays for a quick printing business for sale, what the P&L should look like, and what are potential problems that may not be obvious to the uninformed purchaser, you are well equipped to identify a desirable business and know what it's worth.
Questions and Answers
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