A Growth Strategy or an Exit Strategy both take an EBIT Strategy

 

Well if you are in the Imaging Channel you were either bought out or at the least been approached to sell. The acquisition frenzy is the buzz these days. The landscape of the Independent dealer is changing. The large venture-backed dealers are buying up more and more of their competition. Most dealer organizations within the channel have already decided on a Growth Strategy or an Exit Strategy, and some have decided on a Maintain Strategy. Global Imaging Systems a Xerox company defines its acquisition formula on their website as this. “(Adjusted Operating Profit x Multiplier) – Debt + Excess Cash.”Operating Profit refers to your company’s most recent twelve months of Earnings Before Interest and Taxes. This is also referred to as EBIT” http://www.gisx.com/acquisitions/

Whether you Sell or decide to Grow the first thing you must do is get the balance sheet in order and make sure that the organization's profitability is at the highest level possible. Why is the Imaging Channel believing the non-sense that single or low double-digit EBIT is acceptable? After all, selling your company is a multiple of earnings figure. Oh, there are the stories of the seller who got a five times multiple of revenue and sailed off into the sunset. The bottom line in 2017 a print-centric organization with no other annuity-based service deliverable will not sell for revenue unless of course, they have a 20 percent of revenue of EBIT because in that case, the buyer would pay a five maybe six times multiple of EBIT which by the math would equal or exceed their revenue. 

So the easy thing is getting the EBIT to 20% and doing it by the end of 2018. Those who do this will have the best opportunity to succeed in either that Growth Strategy or the Exit Strategy. If dealers looked deep into their organizations they would find the increase in profit potential is in their Service business; Technicians, Parts, and Supplies. Everyone in the channel knows the sales engine is not where your organization's profit is, and there is very little EBIT contribution from sales departments. I discussed this topic in an earlier article attached in the link below.

https://www.linkedin.com/pulse...wers-ray-stasieczko/

So before you sell, or even Buy a dealership understanding the potential service operational cost savings is extremely important. Think about it for every dollar returned to the EBIT could be worth five maybe six. Why would anyone want to acquire a business without proper due-diligence? Of course, they wouldn’t. However, the definition of proper Due-Diligence has many interpretations. Some will use emotions, and some will use numbers.

“During diligence to understand the facts, emotions can hijack common sense.”

If we all agree that the potential EBIT increase will come from reducing operational service cost here are some questions to create thoughts, and hopefully, if you’re a dealer principle you have the interest to seek the answers backed by real scientific data and do it personally.  

Here are my Questions

How does your organization manage technicians start and end time? What are the average start and end times of the technician staff? What is your percentage of hours worked against hours available for technician staff? How many more machines could your team service if all technicians worked 85% of their hours on service calls? What metrics are used to determine the need for an additional technician? What is the total number of hours you technicians are paid to work? What is the total payroll amount of all un-accounted technician hours over the acceptable 15%? How many sales representatives could you hire with those wasted dollars?

When was the last time a technician was terminated for deficient performance? Do you grade your technician’s performance? If so how many have a C or below? Do you pay technicians a performance bonus? If so, what percentage of technicians earn one?

Does your organization display the results both good and bad of technical staff publicly, in the way sales departs are publicized? If so what do you highlight?

How does your organization coordinate technicians call load, do you have territories? Do you have a computerized mapping system? Who audits technicians service tickets? How do you manage technician travel? What is the average drive time between calls? 

Who decides on car stock? Do you use a proven software management tool which can determine parts needed based on worldstats, or do technicians manage by the “This is what I think I will use system”?

Who in your organization knows exactly how many inventory dollars are in your technician’s car stock, and more importantly what is the dollar amount of the parts in their car stock which has not had usage in 90 days,180 days, more than a year? How often do you inventory car stock? What is the percentage of parts in the warehouse to total in all technicians Car stock?

What is the percentage of callbacks your customer's experience? Do you know the reasons for callbacks? If so what percentage of callbacks are based on technician not having the needed part to complete the call the first time?

What is the cost per copy of technician staff’s W-4 total when divided by your total copies produced? Do you know the monthly output all customer totaled for B/W and color? If so do you track, and how do you use that information?

Who in your organization knows the dollar amount of inventory parts with no usage for over a year, 18 months or longer? If your parts write off is more than 1% of total dollars ordered are there any compensation penalties for those responsible for inventory management. What is the percentage of the dollars in part obsolesces against your total parts purchases? Do you track that Monthly, bi-annually, or annually?

Who in the organization knows the dollar amount of parts in inventory which will become obsolete monthly, what’s the average you write off monthly or does your organization wait until the end of the year? What do you do with the parts you write off?

Does your organization have an accurate list of all obsolete parts in your inventory or do you classify these obsolete parts as non-inventory then stack them against the wall in the back of the warehouse?

How often does your organization look at your top 100 highest cost to service serial numbers? Do you know what percentage of serialized serviced equipment is costing you more than a worldwide average? What is the average cost per copy of parts on your production color units?

When was the last time you reviewed the percentage number of your FCE or First Call Effectiveness? And are you aware of the metrics used and why?

Please visit the attached article for more on the importance of FCE and how it impacts cost.     

https://www.linkedin.com/pulse...-you-ray-stasieczko/

Some questions for the venture capitalist or those dealers growing through acquisitions.

When acquiring a competitive dealer do you install and evaluate the information of any service performance analytics software which answers all the above questions? When buying a common market competitor do you use a mapping tool to effectively determine what percentage of acquired base your organization could absorb into your current staff’s workload?

In an acquisition do you buy the obsolete parts from the seller? If so where do you dispose of the obsolete inventory? Do you define territories for the technicians from the acquired company before you merge or after? What is the average parts inventory turn on acquired companies? What is your goal for inventory turn? How do you determine if the acquired companies service leaders are more qualified than your companies service leaders?

Well, it does not take a Rocket Scientist to figure out the importance of knowledge driven by data. I am confident that if dealer principles or the leaders of V.C. firms would dedicate the time to answer these questions using factual data. They would discover on their own many more questions to ask themselves and their management teams. More importantly, they will have the ability to influence behaviors based on facts, not emotional noise. 

The service departments are the life-blood of the Imaging Channel, and all its leaders need to get involved deeply in the evaluation of the facts around their service cost. It’s the Service Department of your business where your EBIT is feed, disciplined and raised. No one wants their EBIT to remain a pre-teen, everyone wants to raise their EBIT to at least 20 - percent that is, am I right? Returning excess operating cost to the bottom line is what astute business leaders do.

R.J. Stasieczko

For over 25 years BEI Services the world’s largest database of service metrics for the Imaging Channel. With hundreds of organizations, thousands of Technicians, millions of devices and billions of pages on the BEI Platform, the data and statistics we provide to our partners are unprecedented in helping them achieve best in class benchmarks. It is from the knowledge of facts in our Trade Marked Worldstats Database which allow BEI partners to improve by accurate measurement eliminating the emotional noise of complacency. https://www.beiservices.com/so...n_incentive_program/

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Comments (3)

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As you've said for years, the Imaging market is at crossroads.
- Acquire other dealerships and achieve economies of scale?
- Position the dealership on other markets?
The only bad solution would be to deny the reality.
Therefore, the accountancy is always right.
And your EBIT definition makes sense.

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