PPB March 2020

The easy answer is that the baseline value of a distributor in our industry is one times the gross profit paid as a percentage of gross profit on future sales in an earn-out model. But that is just a starting point; there are many factors that may determine the multiplier and these multipliers can fluctuate depending on the specifics of each individual business. Such factors would be average order size, gross profit margin, client relationships, the outgoing owner’s willingness to be an active participant in the transition process, if there are sales representatives or CSRs who will be part of the transition, contracts, ecommerce stores established, inventory and so on. All of these things have to be considered before providing a true valuation. Once you have determined the value, the model then determines the corresponding percentages to be paid over the next two to five years inmost cases, but again, there are many other factors, such as down payments, to be taken into consideration. DEREK BOYER Mergers and acquisitions manager Proforma, Cleveland Support Center Independence, Ohio PPAI 196835, D13 Valuation of a closely-held, sole- proprietorship promotional distributorship can be a frustrating and somewhat demoralizing thing. In reality, the individual who ran the business is the business. The only “asset” is basically a customer list with no guarantee that anyone on the list will do business with the new owner. Knowing this, we developed an exit strategy that is working very well and brings stronger value to the seller andmore assurances to the buyer. We even have substantial bonus payments for the seller that drives the value higher. The key is continuity and transparency in the transition fromowner to new buyer that keeps customers happy. The “price” is determined by actual profits for a period going forward rather than an upfront cash transaction. GREGG EMMER Vice president, chief marketing of cer Kaiser & Blair, Inc. Batavia, Ohio PPAI 103148, D12 Q A DISTRIBUTOR ASKS: My clients and I use hardcopy catalogs when looking for answers—not for product. If a client has a budget of $1,000, for instance, and is looking for between 250 and 500 of a single item, they can—or at least, they used to be able to—browse through a catalog and come up with answers to the budget question. Catalogs used to answer the questions of what is new and what can I afford, but not so much anymore. I fully understand the tariffs and suppliers not wanting to be locked into pricing for the year, but some guidance, such as “$10 or less” or “between $4-6,” must be provided. I also understand that many suppliers have pricing on their websites, and that’s great for someone who knows exactly what they want and just needs pricing. But for those looking for answers, again, not product, the two-plus-step process of nding an item of interest in a catalog, then opening the website, nding the same product and getting pricing is time-consuming and frustrating. Are other distributors having similar experiences, and if so, what are you doing to remedy it? It is my opinion that most suppliers are being careful with their pricing lately due to the constantly changing tariffs. That has been very volatile over the past year and is still in flux. If you use catalogs, I can see where it would be an inconvenience. However, it is a sign of the times. BONNIE NICHOLS Owner Logarrow Marketing Services Shingletown, California PPAI 356343, D2 Thank you for writing about catalogs with no pricing. You are 100-percent correct. I do not pass out those catalogs without pricing anymore; instead, I use a [different supplier’s] catalog with pricing. MARK JOHNSON President Commander Printed Products Oxnard, California PPAI 134250, D4 The only thing worse than not having catalogs is having no catalogs: “It’s all online!” Having been in the industry for 45 years as a distributor, I’ve seen a thing or two—and shopping online requires you to knowwhat you are looking for, and then trying to figure out where each vendor hides “it” in their online catalog. Online “browsing” is a joke. I agree that a lot of time, money and effort are wasted on printed catalogs that are not used. However, printed catalogs have been the mainstay for an industry that did about $80 million when it started, and is well into the billions now. Bring back printed catalogs, even if there are no prices. HARRY PARRISH President Harry A. Parrish & Associates Kerrville, Texas PPAI 107470, D2 Do You Have An Answer? A Distributor Asks: Has anyone ever had a large nonpro t ask you to sell to them and have a pro t-sharing plan in place so money can go back to their organization? I’ve been in business 23 years and this concept is not making sense to me. What’s Your Answer? Email your responses to Question@ppai.org . Danielle Renda is associate editor of PPB. | MARCH 2020 | 13 INNOVATE