Many businesses continue to struggle financially. Some are forced to close their doors. Why? They hoped they were doing everything right. However, times change, as does how we do business.
I read an interview in the online publication Print CEO about a once highly successful California commercial printer that closed its doors after struggling with a significant debt load, technology changes and a shrinking marketplace. This printer had been in business for 33 years. To read this interview, click here: http://bit.ly/btg0Cg
The owner cited several things that contributed to his downfall. In an effort to reduce labor costs, in 2007 he made a significant investment in equipment. Two short years later he reduced his workforce and lost several hundred thousand dollars. Within five months, they were behind on the new press lease payments.
Finally, the leasing company repossessed the press. After removing the press, the leasing company had received equipment and cash payments in excess of a million dollars. Then the leasing company sued the company and owner for $1.2 million. Production ceased. The doors closed.
It’s too late when leasing companies no longer speak to owners. When attorneys are poised to strike. When the repo truck is in the parking lot.
Be proactive with your lenders!
If you’re having problems or foresee difficulties on the horizon, talk to your leasing company NOW.
One printer I know offered his leasing companies altered payment plans last summer. All but one lessor agreed to restructure. Business and cash flow improved and he’s now making regular payments. However, one leasing company refused to negotiate and they hauled off the equipment after a six-month impasse.
Back to the closed printing company…the owner gave this advice: get a $1.00 buyout instead of a fair market value lease. Great advice! In fact, you can read more about the pitfalls of fair market value leases in my other blogs.
He also advised the benefit of short-term leases, especially for digital printing equipment. Correct! Technology leases should never be longer than three years.
One way to remove end of lease uncertainty is with the $1.00 buyout lease. Always negotiate the lease before you sign the contract. Every lease is written for the benefit of the leasing company. You need to make the contract more evenly balanced.
Here are a few tips:
- Negotiate the equipment purchase price as if you are a cash buyer.
- Ask for three finance options.
- $1.00 purchase
- 10% purchase option
- Fair market value purchase option lease
- Make sure at lease end you can return, renew or purchase the equipment. If it’s a digital press, you probably want to return it.
- Keep digital leases short.
For more ideas, here’s a link to an article I wrote for NAQP (National Association of Quick Printers) last year with seven tips to keep the presses running: http://bit.ly/2KhoGF
Do you have a story to share about your leases? Share it here and help others learn how to improve their leases.
Another example of the difficulty of running a sustainable business…it is not easy…that is why so many fail…you can’t know it all yourself so one has to rely on other’s. There is always more to the story but in this partiular case it is distrubing to me that this person did a lot of what seems to be the right thing for a lot of people and an industry…
Rachel Ann, I agree with you. Although I do not know Jim, he showed great courage in sharing his story. He did so to help others.
In speaking to printers, I often hear the hope that a new piece of equipment will save their company. That doesn’t always work as many who shut their doors in 2009 & 2010 will attest.
If owners are not in a CEO peer groups I encourage them to find one. Running a biz today is not for sissies. We can’t know it all.
Many peer groups have been together for years. Their members are loyal. At their meetings, they speak openly and honestly. They help each other build stronger companies. Find one if you are not in one and dig in.