What Financials are Important When Selling Your Printing Company?
Admit it: You’re thinking of selling your printing company. It may not be today, it may not be tomorrow, but every owner thinks about selling their company.
Some think of it more than others. Some are ready to act on it more than others. It doesn’t matter where you are in the lifespan of your business, or with your personal goals. If you’re thinking about selling your business at all, you need to focus on key financials.
Financials are the foundation upon which every deal is built, and there are generally three that investors will focus upon. But before I tell you what they are, you need to understand one critical element that investors are looking for with all three financials: Consistency.
That’s right, consistency. Investors will understand ups and downs from macro-events like the financial meltdown of 2008, but they do want to make sure you’re consistent with your business. Huge swings, either good or bad, indicate uncertain management and poorly defined goals.
Like anyone, investors are looking for consistency in the following areas:
- Amount of Sales - This is considered your top line revenue. Investors will look at your performance over 3-5 years. They’ll want to see how your sales team performs, how effective your market is, and how you compare to the marketplace.
- Gross Margins - This is a critical barometer in terms of your company’s comparison with the rest of the marketplace. Maintaining your gross margins indicates your entire organization is working effectively; it’s not just a result of a great sales team. To pay a premium, an investor will be looking for gross margins of 50% or more.
- Profit - Let’s say you’re doing great in the first two criteria, but the bottom line profits are a mess. Maybe you’re pulling out too much to pay yourself, or there is some sort of discretionary income that doesn’t make sense. This will be a red-flag for any investor. A buyer will be looking at your SDE (Sellers Discretionary Earning) very closely to understand the EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization). That’s a big part of determining the multiples for your company.
When we use the term “consistency” in any of these areas, understand that it’s not just for conservative or low-growth company. If you’re experiencing explosive growth, you need to show how you consistently focused on your vision to get to this point.
A potential investor will be looking at the three areas I listed above when they consider buying your company. But they’ll be reading between the lines to ensure you were consistent in each benchmark.
(Photo by Rambermedia.com)
To read about seller mistakes to avoid when selling your printing business, download, Rock LaManna’s “12 Code Red Seller Mistakes.”
Rock LaManna is the President and CEO of the LaManna Alliance. The LaManna Alliance helps printing owners and CEOs use their company financials to prioritize and choose the proper strategic transition – including mergers, acquisitions, organic growth, and exit / succession plans.