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Carl Gerhardt

Business Sense & Sensibility

By Carl Gerhardt

About Carl

Carl Gerhardt is the chairman of Allegra Network, one of the world’s largest print, marketing and graphic communications franchisors, linking more than 500 locations in North America under the brands Allegra, Signs Now, Insty-Prints, and American Speedy Printing.

Carl and his wife, Judy, owned and operated their own successful Allegra Network franchise for nearly 20 years before selling the $2.3 million operation in 2003. He is a PrintImage International/NAQP Honorary Lifetime Member and was inducted into NAPL’s prestigious Soderstrom Society in 2010 in recognition of his contribution to the industry.

Small Business Aid Package: Buyers’ Bill, Sellers’ Bill or Both?

When the small business aid package passed in September, creating a $30 billion small business lending fund and providing $12 billion in tax breaks to help companies invest and hire, business owners in every industry began to ask the question: How will this affect my company?

There is no doubt that the legislation should impact the printing industry—both buyers and sellers. The question is, Will it? When? And, how? 

Here are some pressing questions many of us are asking:

Will sellers have it easier, since buyers should have better access to capital?
In theory, yes! In actuality, we simply don’t know. Too often when such government programs are announced, we do not see any real impact on “small business” and/or lenders at the local level. Buyers should check out their lending sources and see if their potential lenders are really serious about lending to them. This means going through the process of doing a thorough review of one’s financial profile and getting a firm commitment from the lender.

It is one thing to have a loan officer (salesperson) give you a verbal “You qualify.” and quite another to get the loan committee’s actual approval. Franchise organizations, and in some cases business brokers, have lending sources they work with that can help with this process.

A better answer to this question might be that if a buyer or seller has to rely on government stimulus to make a deal happen, they may not be thinking right. If a fair sale price is established and a buyer is financially qualified for the size of the purchase, the deal should get financed with or without any special incentives. That said, the aid package should help and certainly should not hurt.

The recession has produced a large number of qualified buyers that have been downsized by corporate America. This should make it easier for sellers to find a buyer. Moreover, with government incentives, it should be easier to get financing.

Based on our experience with the Allegra MatchMaker Program, sellers should still be prepared to finance a portion of the purchase. Many, if not most, lenders require this. We do, as well, when we match buyers with sellers to join our franchise. When the seller has some skin in the game, it gives everyone more confidence that the acquisition will work and will make financing approval much more likely.

Further, maintaining some vested interest in the future of the business with some watch dog controls that can be included in the promissory note and security agreement can be a win-win for both the buyer and seller.

Will more business owners be inclined to sell their business?

Many business owners would like to sell, given what they have been through the last two years. The reality is that a large number have seen their sales and profits erode dramatically.

In the print and sign industry, sales have declined an average of 20 percent during this time period. In many other industries, the decline has been even more dramatic. This has reduced the value of many of these businesses to the point to where the seller cannot “afford” to sell. Many will choose to attempt to build back the value of the business before selling. The government-sponsored lending and tax credits may help some of these businesses with this rebuilding.

A critical point is that owners expecting the market to come roaring back may be in for a big disappointment. This is especially true for printing companies. Many industry analysts are predicting that print volume will not likely bounce back as it did following past recessions. So, waiting to sell and depending on market forces to restore lost value may very well be a false hope. On the contrary, if owners are not willing to restructure their businesses for the new graphic arts market, they may be better off selling now before value drops further.

Others may find the industry restructuring that has been accelerated by the recession puts them in the position of being unable to afford the investments needed for the future. Their only choice may be to sell for whatever they can get. Many of these businesses may be forced into selling to, or consolidating with, another printer. Finding a buyer that is willing to buy a “fixer upper” is very difficult. Most buyers tend to be risk adverse and want to replace their former income as quickly as possible. This is why they are not motivated to start a business from scratch.

The financial portfolios of potential buyers also suffered dramatically during the recession. The recent recovery of the stock market has helped rebuild these portfolios and has encouraged many of these potential buyers to re-enter the market. This would signal that this would be a good time to sell, as buyers are not only more motivated but also more financially fit.

Is it a good time to sell?

There is never a simple answer to this question. It depends on what is motivating the seller and how well the business is positioned to sell. There are organizations and programs available for business owners to utilize if the time is right for them to sell. As mentioned, Allegra Network currently works with both buyers and sellers through the MatchMaker Program. It pairs entrepreneurs looking to invest in an Allegra Network location with independent commercial print and sign shop owners seeking to sell their existing business.  

As it stands, it is still too early to know what the long-range results of the small business aid package will be. However, the most important realization to be made is that while many of America’s small businesses have suffered during the past few years, the industry outlook is much better than it was three years ago. This will result in a better environment for both buyers and sellers.

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