***What is the real elephant in the room? Ascent Partners 12 April 2011***
The elephant in the room is not the impact the carbon tax may have, nor the attainment of environmental credentials or colour matching or workflow; it’s that most of the industry’s members are operating unsustainable business models.
To substantiate this view, one only needs to look at what has happened in the past five years:
• A reduction of 25% of the industry – one in four businesses that were operating four years ago, are no longer there
• Very few new industry players – mostly with new business models, like Vista, CMYK hub, print management firms
You may argue with the numbers, but look around your business, and I think you’ll find they are pretty close to the truth – which raises a question, who keeps count?
It doesn’t take a rocket scientist to see that this trend shows no sign of abating. Here’s what I see as the a-typical business profile:
• The proprietor is in his mid-fifties
• The business has not recently invested in new technology, and does not plan to any time soon
• Most are privately owned commercial printers
• Most are marginal businesses – producing a minor profit, breakeven or loss
• Most do not have a robust exit or succession strategy
• Their business value is deteriorating by the year – the vast majority of businesses I appraise (over 20 per year) substantiate this.
Unfortunately, most of these businesses do not know what their business is worth. They continue to trade on until eventually an event occurs that makes them put up the white flag. These events include illness, poor cash flow (fed-up creditors, insolvent trading), loss of a major client or staff member and expiry of a property lease. And when they do find out what the real value of their business is, it’s too late to do anything about trying to improve it.
Comparing your business’s performance to that of your superannuation fund
I think it’s a useful exercise to compare the past, present and future values of your Super Fund to your business value:
• The Super Fund is likely to have taken a hit with the GFC, but has improved dramatically – To use the ASX as a guide, it was at around 6,800, bottomed at around 3,200 and now is around 5,000. Most economists see the ASX rising this year. So we have a U-shaped graph.
• In comparison the “a-typical printing business” as described above, its value has gone from 6,800 to say 4,000, and then continued to fall to 3,200. And if you got professionals to predict the future, the vast majority would say it would continue to fall. So, in this instance we have a pretty negative straight line graph.
A vital question to ask, if you were an independent manager of your Super Fund is, “would you have your business as part of your stock portfolio?” The financial answer likely to be no. On what basis could you see the financial performance improving at the rate of the other investments? The emotional, easier and most common answer is yes.
The real elephant in the room is that many in the industry own an underperforming business as part of their Super Fund, and don’t know what to do about it. Exiting is a hard decision to arrive at – it affects your lifestyle, your employees and your family.
The answer is to start to address the issue now - initially gain a “market reality” estimate of the real worth of your business, then try to predict its future earnings (simplistically, what stock prices are based on) if you stay “as is”, and then do something about it.
As someone who is knowledgeable in the industry and knows what printing businesses sell for, we can help you with the appraisal and subsequent forecasting and planning. Phone Richard Rasmussen on 0402 021 101 for a quote to get the process started.
