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Organic Growth is Essential for Healthy Printing Businesses

By on March 17th, 2014

A few weeks ago I wrote an article about the difficulty of putting industry data in perspective when there are trends that affect basic data measures. The article was about how surveys of business revenues are affected by consolidation, making it difficult to determine organic growth rates.

Organic growth rates are important in judging performance. If you hear news reports of the financial performance of retailers, for example, the phrase “same store sales” or “stores open more than one year” will be used. This means that they are attempting to convey the underlying growth rate of their business levels.

The survey conducted at the end of 2013 captured results for businesses that reported an increase in revenues of 1% or more were adjusted for consolidation effects. The chart below shows how results are adjusted for consolidation, inflation, and both. Note how much each adjustment reduces the percentage of respondents. (click to enlarge)

Increases after inflation and consolidation 031614

The blue bars are the original survey reports. The red bar is after adjusting for inflation. The green bar is the adjustment for consolidation. The rightmost blue bar is after adjusting for both.

Like the PIA Financial Ratios use the top 25% of respondents as “profit leaders,” these data show that 22% of the all respondents category survived the adjustments and had net growth of their core business. That’s probably no accident, since we know that only the profit leaders have profits. For years, the other 75% have had no or low single-digit profits. In some recent years, they have had losses.

A good, healthy, core business is essential for printing businesses. Financial institutions have always displayed reluctance to loan to printer, as they have other industries dominated by small and mid-size family-owned businesses. Therefore, self-financing is critical for most printers. In recent years, and definitely in the years ahead, financial strength will prove to be a significant competitive weapon. Work to exceed typical financial ratios. Meeting typical industry averages will not be enough in the years ahead.

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Inflation multipliers as of the end of 2013 are below. In late April we will publish the weights of the first quarter.

multipliers 031714

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  1. 2 Responses to “Organic Growth is Essential for Healthy Printing Businesses”

  2. By Wayne Lynn on Mar 18, 2014 | Reply

    I couldn’t have said it better. Like you implied, there is probably a strong correlation between the profit leaders and the “net growers”. It takes profits and strong cash generation to grow in a tough environment, especially one where the demand for our traditional products is shrinking. My crystal ball is as opaque as usual but if your business is not experiencing true net growth in the way you describe it your days owning it may be numbered.

  3. By David Uno on Apr 20, 2014 | Reply

    I just wanted to add that you need to evaluate what is part of the core business constantly. Determine what areas of business you should get out of. Over Aiea Copy Centers 28 years of business we started with Offset and Analog B&W. Along the road, we added Color Copies, Digital Printing, B&W Engineering copying, and wide format color. We no longer have Offset, Analog B&W, and B&W engineering copying.