As a follow up to last week’s “take aways,” I need to address the question one reader posed, “Do printing shops really sell with sales of $1-2 million? Have there been sales for cash where the old owners walked away?” Yes.
Data Supports Print Shops Really Selling
The two biggest databases of business sales (transactions) in the US are Pratt’s Stats® as well as BizComps®. Biz Comps is the database compiled from business broker transactions and Pratt’s Stats is a smaller but much more detailed database disclosing many of the fine points of business sales. Both have instances as our reader describes of signficiant print shops selling for all cash.
That said understand this is not the average. That’s mainly because the Small Business Administration and bankers these days (since the great recession) want to see sellers with “some skin in the game.” That’s loosely interpreted to mean 20% of the sale price, so it is most typical for the seller to carry some paper on a deal these days instead of walking away with all cash.
Of course, if a buyer doesn’t require bank or SBA financing, then the seller’s financing percentage could be very low to nothing. But, again, this isn’t typical although it happens. On the flips side, some owners are so happy to sell, they have financed 100%. I don’t recommend it, but it happens although it’s usually among family members.
Folk Wisdom: Don’t Believe It for Print Shops Really Sell
Our reader also proffered that every print shop sale he had heard of was on a contract basis that turned out to be “cleverly worded cherry picking (of accounts).” Well, that could be as it could be he hasn’t been privy to a lot of significant print shop sales and/or it could be he’s been recipient of a lot of “offers” from “trollers” or other printers who commonly send out letters saying they want to buy your business. Fact is, some of the franchisors make it a habit to send such a letter every year in markets where they have franchisees.
Concept these guys offer is that they pay for your “customer list” generally on a commission based on future sales. Commonly it’s 10% for two to three years and commonly no cash up front is involved. It’s also common for businesses to sell this way when they’re earning less than $100,000 (income before owner’s compensation), little to no organization (workers not organized around functions so pull the owner out and everything collapses), slow or no growth and low margins. And for many of these companies, this is the only way they can be sold (sold on parts vs. earnings). So at least be thankful there are folks who will buy this way otherwise the seller may get nothing.
Here’s an article discussing this very point: https://cprint.com/cash-whats-business-worth/
Structure of Print Shops That Sell
Our reader continued, “I am trying to find out if these types of sales did occur and how were they structured.”
Answer again is yes, they do occur. Now, how are they structured? Sales of our kinds of businesses are typically Asset or Bulk Sales versus stock sales (like stockholders buying and selling shares of IBM). The asset or bulk sale is where the buyer buys the producing assets of the company but the seller keeps the working capital (receivables, payables, taxes payable, etc.) and reduces these assets/liabilities to cash.
Learn more about asset or bulk sales here: http://crouser.com/what-assets-are-usually-sold-with-business/
And here is an article about workers in a bulk sale: https://cprint.com/loyal-workers-business-sale/
So, the answer to our reader’s question is that our kinds of businesses are typically sold as asset or bulk sales. And, in exchange, the seller usually gets:
1) Cash
2) Cash and promissory note (seller financing)
3) In some cases promissory note only (seller financing)
4) Or some combination of above (most typical)
At the time of sale, the selling owner then “walks away.” The extent of the seller’s exposure in getting paid depends on how much seller financing is done and the collateral backing up any promissory notes (collateral outside of the business itself such as real estate, stocks, etc.). Just as a bank requires you to provide collateral outside of the business to obtain a business loan, you should as well.
Yes, Print Shops Really Sell
So, to answer our reader, yes significant print shops really sell for real money and the seller can walk away although most typically they will hold some small percentage of the financing. Most commonly the transaction is structured as an asset or bulk sale. So, stop listening to other printers and deal with facts, not feelings.
Hope this helps.
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At CPrint, we assist owners with internal transitions as well as help get the business ready for sale through improving performance. Should you wish to have a no cost or obligation transition conference with me about your situation, email me at tom@cprint.com. I’ll be glad to chat.
Tom Crouser
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