Do you need to value a printing business? First, some industry stats to consider:
For a mature industry, commercial printing shows surprisingly low consolidation. There are, for example, some 31,750 lithographic printing establishments in the US alone. This printing industry segment generates an impressive $45B in annual sales and employs nearly 345,000.
Yet an average commercial printer is a small business – making $1,500,000 in annual revenues and employing 11 staff. Commercial lithographic printers with fewer than 25 employees account for 92% of the total businesses in their segment and generate over $16B in sales. Small owner-operator managed printing shops thrive alongside the much larger competitors!
What makes a commercial printing business worth more
No two printing businesses are the same. For a small printing operator, finding a profitable, defensible niche is very important. A number of factors can make your business worth more:
- Business size. Larger commercial printers tend to be more valuable.
- Profitability. Valuable printing companies tend to have operating profits topping 10 – 15%.
- Industry segment. Lithographic printing businesses are the largest segment with good growth prospects. Another valuable industry segment is digital printing.
- Low customer concentration. To maximize your business value, your top 5 customers should not exceed 10% of total revenues.
What valuation multiples are used to value printing businesses
Established commercial printers are frequent business acquisition targets. You can use the selling prices of similar printing businesses to come up with a number of valuation multiples to estimate your business fair market value.
Spend a bit of time studying the data on private printing business sales. After that you will discover that some valuation multiples give you the best estimate of business value:
- Business selling price to gross sales plus inventory.
- Selling price to seller’s discretionary cash flow plus inventory.
- Price to annual EBITDA. Again inventory is extra.
The EBITDA based valuation multiples tend to give you the business value estimate with a higher spread between the low and high values. One reason for this is that the available cash flow in a commercial printing company depends on its capital expenditures, such as new equipment purchases. While EBITDA includes the depreciation charge, it does not account for the annual “capex” outlay directly.
Generally, the higher your business EBITDA and the lower the capital expenses, the higher the EBITDA based multiple. This is especially true for commercial printers grossing over $2M in revenues.
Other business valuation methods for commercial printing businesses
As with other small businesses, you can value commercial printers using a number of income and asset based business valuation methods. For owner-operator managed printers, the Multiple of Discretionary Earnings method is a frequent choice. This well-known method lets you determine the value of your business based on its earnings and a set of financial and operational performance factors.
For a well-established commercial printing business, the Capitalized Excess Earnings method is a good choice. You can calculate the value of your business and its goodwill – an important part of what makes a successful business worth more.
If you are looking to sell to a larger competitor, a group of investors, or need a very accurate, defensible business appraisal, consider using the Discounted Cash Flow method. You can determine what your business is worth directly from its earnings forecast and risk assessment.