Hyding Out

Fathers Day Reflections

Given the literally thousands of family businesses in the print and graphic communications industry, I thought it appropriate to share Fathers Day reflections this year. At the risk of offering "too much information", there are "lessons learned" from my own father, Frank Hyde, who is a shining example of a great father influencing his son over the course of many years.

Sometimes people ask me how I learned so much about finance and accounting without a formal degree in those subjects. I tell them I grew up with mortgages, literally. As a young boy, I played on my dad's desk while he organized various papers related to a mortgage business that he founded as a supplement to his tax preparation/accounting practice. Ironically, the mortgage documents back then were "Blumberg forms", and it would be 40 years later that Blumberg became one of my clients.

Beyond providing a virtual playground in his office, my dad influenced me to use relationships in building and maintaining business. Time and time again I saw that the glue holding the clients together was his personal connectivity. Although I take pride in my relationships among clients, colleagues, and co-workers, I know that my computer-less dad spent more time IN PERSON with his relationships, and, so far, the internet and computers simply have not replaced the person to person experience.

Basic business skills were on display for me as a young person living in my dad's home. Things like being on time, scheduling meetings, writing follow up notes, and being courteous were learned by being around this master business person. I don't know of any other way to instill these attributes in a young person, other than through "being there".

How to handle adversity is something I learned from my dad in the mid 1990s when his successful-for-40-years mortgage business ran into major problems. I'll never forget the day that he told my mom about the bad news he had kept to himself. To this day, I advise clients in crisis mode to use 4 lessons from my dad's experience that got him through the bad times:

        hire the best professional you can;
        manage the process through your relationship with that professional;
        pay their bills willingly and on time; and
        keep living your life.

Now as my dad nears his 89th birthday, you'd think he is sitting in some retirement home or on the beach passing time? Nope. He is still working! His long term transition to a smaller, easier to handle, and yet very profitable accounting practice is a lesson learned for all of us who are concerned or thinking about "down the road". The 5 "lessons learned" from my dad's experience are:

       keep only the best clients based on relationships;
       hold down overhead;
       use part time workers;
       avoid projects or clients you don't have the tools to handle well; and
       enjoy what you do.

In wrapping up this blog post, I can only say, "Thanks, Dad, and happy fathers day!" Below is a photo of my dad and mom along with Natalie Hyde, my daughter.....guess who is the computer whiz out of that group?

It's Never Too Late to Sell Your Distressed Business Unless Any 1 of these 3 Factors Exists

Most companies in the print and graphic communications industry are sold "in pieces" as opposed to being sold as a "going entity". That's because the consolidation savings and/or revenue enhancement from synergistic combination unlocks the value of general intangible assets such as customer relationships. This means that troubled companies often have significant value in their underlying assets even if there is no "e" in EBITDA.

The implication is that some owners think that they can "hold on" right to the end and still get value for their customer accounts.

But what if the business is "in trouble"? When is it "too late" to sell the general intangibles for anything other than a token amount?

Here are 3 conditions that may exist if the business is in a death spiral. Any 1 of the 3 will render the general intangibles as nearly worthless:

1. the company has missed its payroll, leaving employees in a state of chaos (do you want your CSR talking to customers after hearing payroll isn't happening this week?);

2. creditor problems have affected the company's ability to meet customer requirements in a timely manner;

3. word is on the street that the company is about to close its doors (if the trade hears it, you can not expect customers to be unaffected).

A 4th factor would involve pricing. If the business has cut prices so dramatically that the customers are not profitable, then no one will want to buy those accounts. We had this happen just recently with a printer down south that closed its doors without a sale of intangibles because prospective buyers balked at the miserable pricing being offered to the customers.

If any of the above factors are found, then the general intangible asset will simply be hardly worth much. That said, even in this kind of weakened state, the worst case scenario is that general intangibles tend to retain some nominal value, akin to a "customer list" without the relationships. If you want to know more about this "rock bottom" value, give me a buzz but I would prefer keeping this nugget of insight for clients.

Asking for a Business Valuation? Be sure you nail down these 5 points!

As a leading resource for providing objective, independent advice to owners of print and graphic communications companies, NAPL receives all kinds of inquiries for business valuations. Many of them lack clarity on key issues which affect the project scope, written deliverable, and outcome of the engagement.

Here are 5 points that you should nail down when retaining a professional for a business valuation:

Purpose: Be clear on the intended objective. Valuations for mergers and acquisitions negotiations are dramatically different than valuations used for estate planning purposes. Valuations used for corporate divorce (ownership restructuring such as partner buy-out) are not necessarily similar to those used for personal divorce (each state has different matrimonial laws).

Effective Date of the Valuation: As an example, we had a case in which the relevant date was November 1, but the company used a year-end of December 31 for financial reporting. A conversation with the client and their attorney allowed us to reach an understanding in making an assumption that the value was not materially different from Nov 1 to Dec 31; otherwise, the client would have faced huge accounting fees to create an 11 month financial statement if we had just taken the direction to use Nov 1.

Standard of Value: The selection of valuation methods should be up to the professional resource, but an understanding as to the appropriate standard of value, ie: "fair value", or "fair market value", or "synergistic value" is commonly agreed upon by the expert and the client at the time of engagement or shortly afterward.

Determine the Client: Is the report the property of the company, its shareholders, one shareholder, the bank, or the attorney work product if the case is a litigation matter? Who is responsible for fees? To whom does the professional take direction from? To what extent are various shareholders going to be involved in the process? Are they "on the same page"?

Clarify What is Being Valued: is the valuation of the business "as a going entity"? or its underlying assets such as equipment and general intangibles? is the real estate included or a separate item? is the valuation of the company or the particular shareholder's interest? is the discount for marketability applicable? is the discount for minority interest applicable? if so, what percentage reduction is appropriate?

There are a few more really good points for clarification, but I'm going to save those for clients and prospects who call with serious inquiries for engaging NAPL's Business Valuation services.