Why do printers fail?
There is no sample answer, but a common thread weaves through all closures
Why is the mortality rate so high among Canadian printers? Hardly a month goes by that a printing magazine is not reporting the bankruptcy of yet another firm in our industry. While this is not a new phenomenon—in fact, it’s a reality that all of us have been aware of for at least the past decade—one of the unique characteristics of this high failure rate is that it is truly national in scope.
It appears to make no difference where in Canada your firm is located. And that financial difficulties can hit any organization is a seemingly universal fact. Large or small, well-established or relatively new, all are vulnerable to outside financial pressures if certain agreed-upon ratios are not maintained, or if the money owed to suppliers becomes so large that materials or services will only be provided on a C.O.D. basis. This situation generally leads an organization into receivership or bankruptcy.
To be sure, each situation is unique. However, there are undoubtedly some similarities shared by all firms that find themselves in financial dire straits. What I have observed during the past 35 years is that you can rarely point to one incident that led to the problem—there’s usually a number of factors contributing to an all-too-common pattern of failure.
One frequent occurrence is the printer who ventures outside his area of expertise and either adds more capacity than he is realistically able to absorb, or he purchases equipment that is too far removed from what he produces. For example, it makes no sense for a printer who produces single- and two-colour work to buy a six-colour press in anticipation that he will be able to do all the “fancy stuff” the press is capable of. The additional expertise necessary to print at this level is far greater than simply dealing with four more press units. Virtually every department in a company that decides to make this transition, needs extensive training in order to produce quality work.
While this situation is not insurmountable, the greatest challenge is in meeting the financial obligations that come with financing such a major piece of equipment. Even a used press for $1.5 million carries interest payments of at least $2,000 a week, excluding payments for the principal. This is a significant amount of money for any firm, let alone one that has operated in the single- and two-colour print market. Naturally the problem is magnified if the equipment purchased is new.
Printers often create another problem for themselves when they ask for and are given extended terms and credit arrangements which far exceed accepted business practices. Suppliers to the printing industry—whether it be paper, ink, plates or equipment—want to sell their products or services and are generally happy to have done some business.
The problem becomes apparent when the “special financial arrangement” is not adhered to and days turn into weeks and weeks turn into months before it becomes apparent that there is a major problem. Obviously this situation must be dealt with and, sooner or later, the printer is pushed into bankruptcy or the receiver is called in to manage the assets.
The chief financial officer must have the authority and the knowledge to manage the cash flow within the company. How quickly invoices are processed, receivables collected and suppliers paid is clearly a very important position. If an “imbalance” occurs in any part of this process, huge problems can develop. Printers must manage their debt very carefully as history has shown that suppliers to our industry will extend far too much credit and then find it necessary to take a course of action that can force a company into closing.
While these scenarios create hardships and challenges for printing firms, no situation is more critical than a drop in revenue. The loss of a major account due to a takeover, a change in personnel or a change in buying philosophy can be devastating. Similarly, if key sales reps leave, with the idea of taking their accounts with them, serious problems will develop. As we are all aware, certain efficiencies come as a result of the volume of work that is processed, and if this volume declines, costs will generally rise. This, of course, will greatly reduce the chance of maintaining, let alone increasing, your profit from which you are obligated to pay your suppliers.
Managing a printing company requires many skills. It is devastating when we read that another plant has closed, that many people have lost their jobs and suppliers have not been paid. But surely some of these closures could have been prevented if more care and thought had been given to not only managing the growth of the business, but tending the day-to-day activities.
Duncan McGregor was president of the former Arthurs-Jones Inc., a Toronto-based, award-winning commercial printer. He led the $5 million-a-year firm to a five-fold increase in sales. He is now a consultant to the printing industry and can be reached at (416) 487-7666.