There are a lot of printers going out of business or about to go out of business because they can’t change their business model. Customers no longer walk in and ask for something to be duplicated. The day of commodity printing is over. People no longer need forms to collect information. It is now done on a computer. What print customers now need is help in finding the best way to communicate their message with their customer. The answer isn’t always ink on paper.A recent report by John Stewart for the National Association of Quick Printers found that the average age of a print shop owner was in the mid-50s. They opened their businesses when making a copy required expensive equipment. Today, everyone has a copier attached to their home and business computer. The print services people are buying have changed. Those services aren’t best served by having a walk-in location in a high traffic area.

Printers need to add new services that take advantage of the Internet. One area would be content development for electronic media. Adobe and Quark have released new software will help printers and designers turn their InDesign and Quark files into documents and apps that can be read on iPads, tablets, and smartphones. If the major page layout software developers are taking their businesses into a new electronic direction, printers might want to follow. Adobe has also introduced a line of apps to create content on tablets including a Photoshop type of app. If printers are going to survive and compete they must now learn how to create content that will work in environments other than on paper.

Website development, mobile marketing, QR codes, and other Internet related products can be integrated with print to make a message stronger. Printers will have to learn about and provide these services in some way if they expect to compete in the new electronic communications world.

Printers don’t have to go out of business. They need to evolve their business. That evolution needs to begin today.

By John Stewart

I am excited about my new, second video titled, “Chart of Accounts.” I just viewed a rough cut and, with only minor changes, it is ready to post. I am hoping that it will be available before the end of this week.

If you haven’t had a chance to view my first video on “Sales Per Employee” I encourage you to visit my website or watch it on MyPrintResource.com.

I have another video in the works that deals with “Key Financial Ratios,” and a fourth video titled simply “Cash.” This video takes a somewhat light-hearted, humorous approach at how a stack of $1,000 dollar bills is distributed to pay all the bills in a “profit leader” firm versus how these bills are paid by a “profit laggard” firm.

I learned early in consulting that when owners self-diagnose, often true issues are hidden. In fact, one of the criticisms leveled at consultants is their solutions are so simple that “anyone could have said that.” Sure, solutions are simple. Where a good consultant earns their money is asking good questions so that real problems can be defined; not in just providing solutions. My last post was a great example of this phenomenon when my printer-friend asked, “What percentage of sales should rent be?”

I thought, “Why do you suppose the owner asked that?” So, after I responded (5% to 6.5% with a typical of 6%, which is up from 4.5% over the past five years), I asked the obvious: “Why do you ask?”

And now we get to the rest of the story.

The owner wrote back, “Thanks so much for the information. I was looking back over previous years P & L’s (pre-2007) and saw that rent was running around 7% of sales. Since 2009 my rent has been at 10% of sales. This can be attributed to lower sales volume and rents increasing due to the terms of the three year contract I signed when I purchased the company.”

“My reason for trying to get a percentage of sales number was due to my need to renegotiate the terms. My landlord came back with a proposal that would reduce my rent to around 8.5% of current sales. I agree with your statement that I may have more square feet than I need given my current volume. My problem is that the new terms require I sign for three years with an escalation in rents clause over those three years.”

“In this economy and given the outlook, who knows where we will be in three years? I may want to move to a smaller space or sell/merge with another printer into their larger facility and then I will be stuck in a binding contract. The obvious answer is to go get more sales, easier said than done … Again, thanks for your help. I hope to one day get my volumes and cash flows back up to acceptable levels so I can join your group. For now however, I feel like the “Dead Printer Working” that you so often describe.

So what’s the real problem? The printer’s question was about a benchmark in helping to renegotiate his lease with the landlord. That’s valid but why was he having a time renegotiating his lease? Well, as he later told me, his sales had decreased by half in the last five years. That meant his rent doubled as a percentage of sales and I’m sure everything else was squeezed cash-wise as well.

Now what’s the printer’s reaction to it? In this case he’s putting the squeeze on the landlord to reduce the rent because the print shop’s sales are down. How come the sales are down? Well, I don’t specifically know for sure but can give a fair guess: sales are down because he’s not doing a lot about it.

Oh, yes, we hope and wish for better sales, but unless we actually do something about it; unless we specifically spend our time on selling activities, we’re not doing anything about it.

Well, and again I’m guessing here, but he can’t spend more time on selling activities because he’s got too many other important things to do. Like what? Well, get jobs out, pick up paper, deliver jobs (no, that doesn’t count as a sales call), answer the telephone and more.

In short, he doesn’t have time to sell.

And that’s for two reasons.

1. He doesn’t make time to do anything, rather reacts to whatever happens. This is most typical of small business owners regardless of their type of business. We don’t accomplish important projects (in this case selling activities) because we can’t dedicate “heads down” time to any specific project. And the reasons for that are many.

They can range from workers not being trained to do specific tasks (can’t set up the folder or can’t price jobs or whatever) to the owner self-inflicting their own wounds (owner has to price all jobs because no one else has the touch which, in turn, really means the owner hires people to stand around and watch them work).

Answer I often use here is to work with owners in establishing a weekly time planner. Yup. You can actually plan your day within reason. Specifically you plan for interruption time as well as heads down time. And then you work to eliminate the reasons why you can’t stick with it.

There’s too much to this to go into it in depth here, but if anyone’s interested, let me know and I’ll write more about it later.

2. He or she doesn’t want to sell because he or she doesn’t want to do it. Why? Not trained in “how” is the most common reason but it’s not the only one. In straightforward cases, most implement a plan once they are trained and know what to do and why.

Notice I said “most” though. Occasionally, you will find owners who have a deeper reluctance or a reluctance based on other reasons. Good news here is that there are tests for true reluctance as well as proven remedies and training for the various strains of reluctance. Yes, I will write more on this soon as well.

Let’s go back to our friend, though.

His real problem is that his sales have dropped by half and he didn’t really do a lot about it. What he was doing was focusing on the symptoms (lease was up and landlord wanted more rent).

Even worse, that’s about to lead him into a really bad decision. Again, he wrote, “I may want to move to a smaller space or sell/merge with another printer into their larger facility.”

Moving to a smaller space is logical given the right conditions (not impacting sales that much and an immediate bounce back in sales isn’t imminent).

Getting married to another printer, however, can cause many more problems than high rent. The merger of two weak companies does not make a strong one. Additionally, figure at least $1 million in sales per prime family living out of the business to prevent cannibalism. There’s more but that will do for now.

And a final word; he mentioned, “I hope to one day get my volumes and cash flows back up to acceptable levels so I can join your group. For now however, I feel like the “Dead Printer Working” that you so often describe.”

Well, lots of folks feel this way. In fact, some of my best clients felt the same way before they sought help, but really what they found was that you can’t wait until your volume and cash flow improve to seek help to get your volume and cash flow up. That makes as much sense as waiting for your cancer to subside so you will have strength enough to drive down to the hospital.

The purpose of our programs is to help owners with cash and time issues. If you want information on the particulars in your case, send me an email to tom@crouser.com.

Okay, I made some recommendations to our friend which did include getting some professional assistance. What’s important for the rest of us is the point that when we treat the symptoms, we often miss the problem. In this case the printer was dealing with a symptom (rent was getting too high as percentage of sales) instead of the real problem (significant drop in sales and not doing anything about it).

This blog originally appeared on www.tomcrouser.com.

We’ve all heard the expression “Time is money.” When people say that, they are most often talking about an employee wasting time while on the clock. But have you considered dedicating an hour to learning something that can help your company make lots more money?

Printers so often pay lip service to training employees or their own continued learning, but when it’s time to fish or cut bait, they find all kinds of excuses not to follow through. Considering the bounty of free webinars available lately, if you’re still making excuses it may be time to take a hard look at your motivation. Money isn’t holding you back—they’re free. Time isn’t holding you back, either. The majority of these webinars are only an hour long, and if you can’t break free or can’t spare an hour of your employee’s time while they’re being broadcast live, most of them are archived so you can access them at your convenience.

In the past week, I have probably added 15-20 webinar notices to the industry calendar on MyPrintResource.com. There are free webinars about mailing issues, financing and tax planning, multi-channel media, sales management and techniques, and digital printing strategies. And that’s just the tip of the iceberg. We hosted free webinar on September 21 in which QP’s Sales Clinic columnist Dave Fellman spent an hour sharing ideas about how to prospect for new sales. More than 200 people signed up for it, but that’s a mere fraction of the number of people who could benefit from the information. If you missed it, you can still listen to the archived recording by signing up for the next two webinars in the series (click here).

While some presenters may drop in a brief marketing message, these webinars are probably as close as you’ll ever get to pure altruism in a for profit marketplace. Take advantage of them while you can. Don’t leave money on the table!

Hi, Tom

I have been tracking my current ratio according to your formula for years and years. Now I am selling my business. We have 13 employees, a four-color shop, $2 million in sales, and very good cash flow.

The potential buyer is calculating that he is going to need $220,000 in working capital. He calculates this from the fact that my accounts receivable is about $220,000. I am taking the accounts receivable, so he will have zero A/R the first day (bulk or asset sale).

But he is asking the bank for an additional loan for $220,000 to cover his working capital. I am telling him that is too much because some of our customers pay cash or within 30 days, so he will have cash coming in to make payroll and he can work with the suppliers to get 60- to 90-day terms for the first six months or so. Also, 15-20% of his A/R will be profit.

I am telling him he should get a line of credit for $100,000 from his bank and that will be sufficient to cover his working capital until the late paying customers start paying.

Is there a formula for calculating the amount of working capital a new owner should need?

Printer in New England

Dear New England Printer

Thanks, but I can’t take credit for the current ratio formula (current assets / current liabilities = current ratio). I think it was invented about the same time as dirt and the first balance sheet. Anyway, to your question of what current ratio your buyer should maintain, I say a 2:1, just like an older company.

Why? Well, it might seem like a lot of cash, but trust me, it will be sucked up into receivables and inventory. And, although you correctly point out that many of the customers pay their bills within the 30 days after the end of the month (next month) and, further, that you can get 60- to 90-day terms from your vendors, you are overlooking one big point: the residual effect that inventory and receivables have on cash.

When do you get your money out of inventory? No, it’s not when you collect from the customer. That’s because most all of us keep inventory on hand. So, if your inventory averages $5,000, then you will never get that $5,000 back until you shut down the business.

That’s because you are constantly buying inventory for the next job that comes in. Think of it as that last quarter tank of gas we usually carry around in the car. If we fill up every time we get down to a quarter tank, well, there’s a quarter tank of gas that will always ride around with us.

By the way, you can create extra cash by reducing the average inventory on hand, which is why the concept of “just in time” inventory became so popular with American manufacturers.

Same thing applies to accounts receivable. We start the business with no one owing us anything and then we add the first 30 days of “charge” sales to accounts receivable. Now, it’s true that we are typically paid in the second 30-day period for the amounts charged during the first 30 days, but while we are deducting the payments, we are filling up our tank again with the new charges from the second 30 days.

As a result, there is a residual in inventory and accounts receivable that you will never get out unless and until you close down the business.

Now, on the flip side, there’s a residual in accounts payable as well. That means you charge items during month one that are paid in month two, but you are also charging additional items in month two as you pay, so there’s a residual there (like borrowing money).

How much should the new buyer plan for? Well, at a minimum, I would expect two weeks of inventory on hand at any one time. And if your direct materials are 25% of sales, then you could use the following formula: Annual sales x 25% = direct materials for year / 52 weeks = weekly usage of direct materials x 2 = estimated inventory on hand at any one time

Now different businesses have different direct material percentages of sales. An auto parts store would have a much higher one than a print shop, for instance—probably 50% or more, compared to the print shop’s 25%. Nonetheless, the calculation is the same. Additionally, one has to consider how long it takes to obtain the inventory. Two weeks is common inventory for items that are readily available, but in some cases it takes months to receive. In those cases, the amount of inventory may be greater.

In the case of accounts receivable, if the terms are net 30, then you can expect something like 35 to 45 days of charge sales in receivables and the residual effect is the same.

So the calculation there is easy as well: Year’s sales / 12 = 360 = days’ sales x 35-45 (choose your number of days) = total AR

Note that I divided by 360 instead of 365 days, which is an accounting convention. Also I know that most folks aren’t open 360 days a year, but calendar days are typically used.

OK, now your buyer can estimate his beginning balance sheet (pro forma) and then work backwards to see what he needs in absolute dollars

As a final note, realize that most businesses do not have a good 2:1 current ratio to start, and often end up thinking they’re always supposed to be without cash, get accustomed to it, and always live that way.

Finally, note that most banks will either not loan for working capital or will limit the total amount. Anyway, let me know if you need more on this. One of my favorite topics…

Tom

Is the summer a bad time for printers? Over the years I have heard that July and December were down months. Printers could expect to see their sales plummet twice a year as print buyers took vacation or enjoyed the holidays.

That sounds logical, but the more printers I meet the more I begin to think this is just an urban myth. I am finding that printers have smoothed out the roller coaster sales ride by constantly working on increasing sales. They don’t stop their sales activities when they get busy with printing. They keep making sales calls. They use the same tools and technology they are selling to customers to improve their own sales.

The new products and services driving successful print companies relate to helping customers get more leads. QR codes, websites, variable data printing, mobile marketing, mailing, Personal URLs, e-broadcasts, and social media are tools that help send a targeted message meant to improve a brand and create interest in a company. The successful printers use these tools to get more of their own leads and to demonstrate how the tools can help their customers.

Buying doesn’t stop in the summer and neither should selling activities. Most printing customers don’t shut their businesses down in the summer. The reality is that it isn’t customers who stop buying in the summer—the printer stops selling. Vacations, longer days, and warm weather can change a company’s focus, and lazy summer days become lazy selling days.

Print companies must continue their selling activities every day. They need to be touching customers in some way constantly so they will be the first printer a customer thinks about when they want to order something.

For a print shop to be successful, it has to develop a sales funnel to keep touching the customers. With websites, e-newsletters, Facebook, LinkedIn, etc., printers can easily keep an ongoing dialog with their customers year round. They just have to do it. No printer should be slow in the summer. They should be busy touching customers, making sales calls and asking for the order.

The world is in a state of flux and business owners are very concerned about getting back on track and seeing their business levels return to growth and profitability. It is difficult to say what is going to happen with the economy right now, but I do know one thing for sure. This is the opportune time to position your business for the future. The business owners who realize this are the ones that will definitely have a competitive advantage in the very near future. What every business owner should be focusing on right now is their infrastructure. If you don’t have a strong infrastructure in place, you will not be able to grab the golden ring when the opportunity presents itself.

To evaluate your infrastructure take a look at the three elements of a business: Systems, People, and Communication. Do you have the systems and procedures in place that will guarantee a high quality product or service no matter what rates of production are required? Take a look at how work flows through your business. Is it smooth and effortless or do projects seem to get hung up in certain areas or departments? Because of new technology and new equipment, many of your current systems may no longer be suitable. Now is a good time to analyze all of your processes and rework where necessary to enhance efficiency and profitability.

Do you have the right people matched with the job functions? Do you have management candidates that can grow as the business grows? Are you blessed with top performers? With the recent downturns in business, there are many good people out there looking for jobs. The bar has been raised in most businesses because of technology and the digital world. You need people who are bright and articulate. They need to be able to understand this new world of business and they must then be able to communicate that understanding with your internal and external customers.

Many businesses now have people who have been on staff for a very long time. There is benefit to this as long as they are up to speed with what is going on with the technology. If they are not, they need to be retrained. The problem is that many of the long-term staff are reluctant about training. In those cases, these employees need to be replaced. It might be time to use the ax in order to move the business forward.

Do you have the communication systems in place to provide your staff with information? Today’s employees want to know what is going on so they are comfortable in their position and with the company. Do you have feedback processes in place so you know what is bothering them or are you able to easily receive suggestions they have for improving the processes and procedures? Are you providing your staff with personal feedback in the way of performance evaluations? Remember, communication is the glue that holds it all together. Communicate! Communicate! Communicate! It can never be overdone. The economy will turn around and when it does, make sure you are ready for success.

This information was originally published in my newsletter TG Notes. If you would like to subscribe to TG Notes, click here.

When a managerial position opens up, it is usually an opportunity to move a top performer into the position. No one would argue that promoting from within sends a strong message to the rest of the company about investing in people and cultivating management talent. Unfortunately, when it comes to actual qualifications, current job performance is given greater weight than the competencies required for a managerial position – most notably, management traits and/or experience.

The fact that individual job performance and management are two entirely different sets of competencies too often gets ignored. Before you know it, you have someone in the position that doesn’t know the first thing about managing a group of people.

Dr Laurence Peter, in his popular book “The Peter Principle” he states, “in a hierarchically structured administration, people tend to be promoted up to their level of incompetence.” The principle is based on the observation that in such an organization new employees typically start in the lower ranks, but when they prove to be competent in the task to which they are assigned, they get promoted to a higher rank. And usually the higher rank can only be achieved in a managerial position. This process of climbing up the ladder can go on indefinitely until the employee reaches a position where he or she is no longer competent. At that moment, when it is too late, the failure of the promotion process is finally recognized.

What seemed like such a great idea is now a nightmare. Where do you go from here? Having the wrong person in management could actually destroy a department or even an entire company. But what can you do now? One option is to hope that the new manager becomes so frustrated and fed up being in a position they know they are struggling with that he or she will quit. Another option is that the manager bides his or her time until they accumulate enough “evidence” to withstand a lawsuit and then terminate the person. A third option is the offering of a mutually agreeable severance package to expedite the entire process. In this case it would be wise to have this person sign a waiver that no future lawsuits would be filed.

In any of the above scenarios the end result is that you have lost a person whom you considered a top performer at one time because you promoted them to a role for which they were not suited. Many companies have recognized this dilemma by creating two career paths: One path is for managerial growth; the other is for an individual contributor. Both offer similar pay grades and salaries, therefore, it is not necessary for them to become a manager to advance within the company.

But how can you do a better job of preventing the “Peter Principle Syndrome” from happening to you when you have a manager opening and you want to promote from within?

1. First you should analyze the individual’s personality. It has been proven that good managers have certain personality traits that help them to be more successful in delegating, communicating, multi-tasking, follow-through, etc. Not all people naturally have these personality traits. In order to find out a person’s strengths and weaknesses for the position, conduct a personality profile analysis of the individual you are considering promoting prior to offering them the job. If they do not appear to have all the qualities you are looking for, at least you will be aware of the weaknesses and know where you will need to do additional training and coaching. For more information on the DISC System that I recommend, go to: www.tgassociates.com/products/products.asp#profiles.

2. Next you should find out if the person you are considering promoting has the mental ability to take on additional responsibility. To find this out, I recommend using the Wonderlic Personnel Test. There are established minimum acceptable scores for a manager’s position. You would want to use these benchmarks to compare your current person against. Many times a company spends a lot of time and money training someone to take on more work and/or responsibility and it never quite works out because they didn’t have the mental ability to actually do the job. On the other hand, you may be pleasantly surprised to find out that you have a person who is very smart and definitely worth the investment of time and money. The Wonderlic test that I recommend consists of 50 questions, takes 12-minutes to complete, and is a very accurate measure of a person’s general intelligence. For more information go to www.tgassociates.com/products/products.asp#wonderlic.

If the Personality Profile and the Wonderlic Personnel Tests give you positive responses, then you can feel more comfortable moving ahead. Below are some questions to think about to be completely sure the candidates are management ready:

Are they ready to:

1. Act more like a coach than a player?
2. Step out of the limelight and let their employees get the glory?
3. Handle paperwork and details?
4. Organize themselves and their employees?
5. Be self-motivated and be able to motivate their employees?
6. Spend most of their time planning and analyzing others’ tasks rather than doing?
7. Listen to complaints and resolve their employee’s problems?
8. Handle personnel issues and possibly fire someone?

Although every organization should continually work to reward top performers, promoting them to management is not always the right answer. Organizations will be better served to come up with more creative ways to reward top performers, while keeping the management positions for those who exemplify the attributes in the testing and in the checklist above.

This information was originally published in my newsletter TG Notes. If you would like to subscribe to TG Notes, click here.

As printers search for new revenue, selling and supporting websites is becoming an exciting new product to sell. Websites integrate easily with printing companies since many printers are already working closely with customers to manage their message.

But there are some printers who do not want to get into Web services. Printers do not have to sell Web services, but they must realize that it is important to understand the Web if they want to continue printing for a company. Printers will have to become “Web experts” because they need to help customers integrate their print collateral with the current website information, even if they don’t maintain the websites.

Combining the power of the Web with print is proving to be a powerful vehicle for getting out a message. Any response generated by the Web needs some sort of printed information. It might be in the form of brochures mailed to the customer. It could be leave-behinds from a personal sales call. Print is still an important part of the communication process.

Customers need help making sure the printed material matches the Web-based material. Is information available both in print and online? Do the logos and colors match, helping build the brand? Do the messages from both media match? In the rush of business, many customers haven’t really looked at how they have integrated their message, and they need help. Printers can help the customer be assured that the look and feel of the Web and printed material are the same and the customer’s brand is protected.

At the same time, printers can be looking at the Web to see what mobile marketing and QR code opportunities are available. Has the customer added QR codes to their printed material to drive customers to websites? Does the customer have online video that can use more clicks?

If print owners ignore the Web, they are just putting another nail in their coffins. Print and the Web play well together. Neither can be as powerful separately as they can be together. No sales call should be done without a review of the customer’s current website. Printers must understand how a customer is using their website and what they want to accomplish with it so they can provide the printing support that is needed.

In our last staff meeting, I told my staff, “no more eating at your stations.” This was particularly intended for my production team. I’ve got employees standing at their presses, printing and pounding down a super-sized burrito at the same time. Not only is quality in jeopardy because they are using both hands eating this thing, but there’s also a chance that the end product will have a little salsa on the side.

Anyway, the very next day after issuing this edict, one of my operators grabs his lunch and his iPod and heads to the front office. He proceeds to find an account manager’s desk (who happens to be out on his lunch break), plops himself down, pulls up YouTube on the computer, plugs in his headset and begins to eat his lunch while now sitting in front of other teammates, customers, and me.

I guess he took “no more eating at your station” literally, and eating at someone else’s station as not a problem. Like I said, you just can’t make this stuff up.

On another – more serious – note, the other day, I was sitting at my desk sipping on a glass of water. One of my employees came in to “share with me” some things going on in the office. In the middle of the conversation I started to choke, my water went down the wrong pipe. Well, I continued to choke and gasp for air to the point at which my employee began to do the Heimlich maneuver on me. As this was not working as he thought it should, he began to panic and call out for help. Now there were three people all standing there, not knowing what to do.

I calmed myself down and was eventually able to get air to flow through my air passages – thank goodness. However, the entire experience was very scary for all of us.

The lesson learned here was the fact that everyone on staff needs to have emergency training. To watch a teammate in trouble and not know how to help is a terrible feeling. My staff felt helpless, scared, and embarrassed that they didn’t know what to do.

Since this incident, I have found a Worksite Wellness Program sponsored by the YMCA. They will provide all sorts of programs based on the needs of our current staff. They will provide speakers from health care agencies, conduct exercise programs, diet programs, refer us to CPR training classes, and many other needed wellness programs. The good news is that 90% of it is free and the programs are designed specifically for our group and individual needs. I would highly recommend that you contact your local YMCA to find out if this special grant program for Worksite Wellness is available in your area.