Independent Management Report
May 25, 1999
The ABCs of LLCs
Marketing with a Full-Color
Magazine
Training Sales Reps Can
Be a Joke
Internet.now
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SFI Buys Superior Graphics, Freedom Graphics
NEW YORK—SFI closed deals to acquire Superior Graphics Inc., a distributorship based in New York, and Freedom Graphics, a distributorship based in New Jersey. Superior Graphics, SFI's largest acquisition to date, is a $22 million firm specializing in commercial printing. The distributorship will serve as SFI's second office in New York. John and Wes Cheringal, brothers who founded Superior Graphics, will serve as sales managers of the office and oversee its 20 employees. SFI, an active industry consolidator, is the Integrated Business Services Division of Workflow Management Inc., a graphic arts company. Workflow Management also announced the purchase of four other firms: Premier Graphics, a Columbia, S.C., company that produces high-end label material; Pacific Admail, a Los Angeles-based producer of direct mail materials; Universal Folding Box, a New Jersey manufacturer of high-quality printed packaging; and Sundog Printing, a commercial printing operation located in Alberta, Canada. According to a Workflow press release, the six acquired companies recorded combined revenues of approximately $89 million. Workflow paid approximately $55 million for the companies, with 25 percent payable as an earn out.Global DocuGraphix Acquires Dugger Business Forms
CHICAGO—Global DocuGraphix Inc., a document management and graphics services company, acquired Dugger Business Forms, based in Jackson, Tenn. Dugger, founded by Ed Dugger in 1992, markets promotional and business products and offers forms management services. It has 13 employees, including five sales representatives. Terms of the deal were not disclosed. Global DocuGraphix has been an active consolidator since entering the industry last year. Other companies in its network include Data Source Corp., Jackson, Tenn.; TPE Business Services, Dallas; Associated Business Products, Santa Rosa, Calif.; Scanning Systems Inc., Minneapolis; and BNB Systems Inc., Little Rock, Ark.Hygrade Acquires ABF
WEST CALDWELL, N.J.—Hygrade Business Group purchased ABF Printed Products, a distributorship in Jersey City, N.J., with annual sales in excess of $5 million. ABF, formerly called Ahlers Business Forms, markets forms, commercial printing and promotional products. Bill McGrath, president of ABF, will remain with Hygrade and direct the distributorship's marketing of ad specialties and premium incentive products.Hygrade Business Group has acquired several distributorships in the Northeast in a quest to diversify its product lines, leverage cross-selling opportunities and become the largest distributorship in the Northeast region, according to the company's president and CEO, Victor Albetta. Last year, the company bought Merit Integrated Products, Waterbury, Conn., and New England Business Forms, Bethel, Conn.
International Paper, Union Camp Merger Approved
PURCHASE, N.Y.—Shareholders of International Paper and Union Camp Corp. approved a merger of the two firms April 30, taking the last steps needed to complete a union that elevates IP's position as the world's largest paper company. Shareholders of Union Camp, based in Wayne, N.J., will receive 1.4852 International Paper common shares for each Union Camp share held. The total value of the merger is estimated to be $7.9 billion, including assumption of debt.Executives Convicted of Trade Espionage
YOUNGSTOWN, Ohio—Two Taiwanese executives in the adhesives industry were convicted of espionage under the 1996 Economic Espionage Act. On April 28, Pin Yen Yang, president of Four Pillars Enterprise Co. Ltd., and his daughter, Hwei Chen "Sally" Yang, were found guilty of paying an Ohio-based Avery Dennison Corp. researcher to slip them confidential reports. The jury also found Four Pillars guilty of the same charges. Authorities say the Yangs received secrets about adhesives used in products such as self-stick postage stamps, brand name labels and battery labels. The Yangs face a maximum penalty of 10 years in prison, while Four Pillars will be fined. Defense attorneys filed for a mistrial, arguing that federal prosecutors didn't prove their case.Taiwan-based Four Pillars is an adhesives maker that competes with Avery Dennison, based in Pasadena, Calif. Prosecutors said the Yangs paid about $160,000 during an 8-year period to Avery Dennison researcher Ten Hong "Victor" Lee, who worked at a laboratory east of Cleveland. Lee said he worked with the Yangs until 1997, when he was caught. Lee pleaded guilty to wire fraud and cooperated with the FBI.
Neely Retires from Precept
DALLAS—Citing personal health reasons, David L. Neely resigned as chairman and CEO of Precept Business Services Inc. effective April 19. "This is one of the most difficult, if not the most difficult, decisions I've ever had to make in my business career," Neely said in a prepared statement. "But life is just too short, and my family is too important for me to disregard their wishes in this matter. This was not an easy decision by any means, but it is the right one."Darwin Deason will serve as Precept's chairman on an interim basis. Deason and Neely co-founded Precept Business Services in 1988. At that time, Precept was a subsidiary of Affiliated Computer Services Inc. It was spun off from Affiliated in June 1994 and has evolved into one of the nation's largest independent distributors of document management services and providers of corporate transportation services.
Merrill Finalizes Purchase of Daniels Printing
ST. PAUL, Minn.—Merrill Corp., a provider of paper and electronic document services with 36 locations nationwide, finalized its purchase of Daniels Printing, a full-service financial and commercial printing company based in Boston. The newly acquired entity will be known as Merrill/Daniels. Daniels had sales of more than $68 million in 1998. It has 375 employees and is the fourth largest financial printer in the United States, according to the company. Terms of the sale were not disclosed.Consolidated Graphics Advances Acquisition Strategy
HOUSTON—Continuing on its aggressive acquisition path, Consolidated Graphics Inc. completed the purchase of Wentworth Printing Corp. of Columbia, S.C., and The Printery in Milwaukee. It also signed a letter of intent to acquire Westland Printers in Baltimore. Terms of the transactions were not disclosed. Wentworth, a 35-year-old firm, will continue to be led by James Doar, president. The Printery, which serves local and national clients, offers a diverse line of products and services from electronic prepress to 8-color capabilities. Dick McMicken, who has been with the company for 28 years, will remain president. Westland Printers serves more than 700 customers in the Washington and Baltimore areas. Barbara Westland will continue to lead the 70-year-old company's staff. Upon completion of pending acquisitions, Consolidated Graphics will have 55 companies with annual revenues of more than $605 million.MANAGEMENT
The ABCs of LLCs
When Christi Jenkins started her distributorship last year, she researched options and contacted state agencies about the business setup process. Jenkins, president of Colorado Printing Services LLC in Aurora, Colo., decided to structure her firm as a limited liability company. "I wanted to keep the business simple, but I wanted a step up from a sole proprietorship," says Jenkins.Dan Hartlieb echoes Jenkins' sentiment. When he founded Midwest Printing & Promotions LLC in Schoolcraft, Mich., he says he wanted to "keep it simple." Previously, Hartlieb was the sole proprietor of another distributorship for 10 years. When he sold that company and decided to start a new one, Hartlieb's lawyer recommended structuring the company as a limited liability company.
Why have more than a dozen DMIA members structured their businesses as LLCs in the past two years? An LLC is a business entity that offers an alternative to sole proprietorships, partnerships and corporations by combining the corporate advantages of limited liability with the partnership advantage of pass-through taxation. LLCs are owned by "members," which are analogous to partners in a partnership or shareholders in a corporation, depending how companies are managed. They can be managed by members or by managers selected by the members. A company can start as an LLC or become one by filing LLC articles of organization with its state office of the Secretary of State.
Although limited liability companies have existed since 1977, when the state of Wyoming pioneered the concept, they weren't an option nationwide until 1996. (Hawaii was the last state to approve LLCs.) In 1997, the IRS opened the floodgates for LLCs by issuing a new set of regulations to govern them. Those regulations allow LLCs to choose how they will be taxed—as partnerships or as corporations. In addition, the regulations allow for one-owner limited liability companies. Prior to 1997, LLCs had to have at least two owners to reap full benefits.
While laws governing LLCs vary by state, here are basic benefits of limited liability companies:
- Pass-through Taxation. Limited liability companies can pass through income plus capital gains and losses to their owners, thereby avoiding double taxation on dividends and capital gains. This elimination of corporate taxes previously was reserved for partners or owners of S corporations.
- Limited Liability. The LLC owner's liability is generally limited to the amount of money the person invested in the company. So LLC members are offered the same limited liability protection as shareholders of C corporations. (Note: "S" corps do not pay corporate income taxes; their profits and losses flow directly from the business to the owners, who pay individual taxes based on the income the business generates. "C" corps are taxed on their earnings; their owners are also taxed as individuals on the profits they take out of the business as dividends.)
- Flexible Management/Ownership. LLCs can have unlimited members. There are no restrictions on who can be a member, so capital can be raised from partnerships, corporations or individuals. Like general partnerships, LLCs can establish any organizational structure agreed on by their members, so profit interests may be separate from voting interests. Members can divide the company's income however they choose. In contrast, S corporations dictate that gains and losses must be divvied up based on the amount of stock a member owns.
- Tax-free Conversion. Existing sole proprietorships and partnerships usually can be converted tax-free to LLCs. A conversion can be done without obtaining a new Federal Employer Identification Number.
- Easy Maintenance. LLCs are generally simpler entities to maintain than corporations. An LLC is required to file articles of organization, which are similar to articles of incorporation, but the operational similarities tend to end there. Many experts agree it's also smart for LLCs to have a written operating agreement, explaining how the company will be run (much like a partnership agreement). Beyond the operating agreement, though, LLCs don't need corporate formalities such as minutes of meetings, resolutions and annual shareholders' meetings. This operating flexibility makes limited liability companies a good option for closely held or family businesses.
However, there are some drawbacks to LLCs. Not all states recognize one-owner LLCs. In those that do, single owner LLCs dissolve when the owner dies, resigns or goes bankrupt. The business converts to a sole proprietorship and loses all the advantages of a limited liability company, but the new owner can reapply for LLC status. In addition, LLCs usually are restricted to a life span of less than 30 years.
Because laws concerning limited liability companies vary by state, you should contact your attorney for details. In addition, there are several publications available about LLCs. Call Oasis Press at (800) 228-2275 for The Essential Limited Liability Company Handbook ($21.95). Call Nolo at (800) 992-6656 for Form Your Own Limited Liability Company ($29.71).
MARKETING
Seattle Distributorship Enhances its Image with a Full-Color Magazine
Several years ago, Printcom Inc. in Seattle mailed a quarterly newsletter to its customers. Like many distributorships' newsletters, it included information about the company and products it sold. A good marketing idea, but like many distributorships, Printcom struggled to produce the newsletter on time. "We were like the cobbler's children with no shoes," admits Judy Coovert, corporate secretary for Printcom. "It was a nightmare for us—a printing company—to get the newsletter done."Driving home from work one day last year, Coovert heard the solution on a local business radio station interviewing Bob Klein of Szerney-Klein Publishing, a firm that publishes promotional magazines for companies. "It struck me so much that I pulled off the road and listened to the rest of the interview," says Coovert. "Bob believes in a company publication that has value and sits in someone's office rather than ends up in the trash."
Last spring, Coovert met with Klein to discuss converting Printcom's newsletter to a 4-color magazine. In the summer of 1998, about 1,500 of the distributorship's customers, prospects and vendors received the first issue of Printcom Communicator, a 16-page magazine.
Each issue of the quarterly magazine includes regular sections. Klein provides articles on financial planning, golf, travel and general business. The magazine also includes articles specific to Printcom and the business printing industry. Coovert generates the ideas for these articles, and Klein writes them. Each month, the magazine includes a profile of a Printcom employee, an article about promotional products and a message from Jim Coovert, president of Printcom.
The publication is a mix of business advice, information about Printcom and fun tidbits. For instance, the fall 1998 issue included articles on improving customer service, maintaining golf course etiquette, selecting mutual funds, choosing corporate gifts and writing a solid business cover letter. Perhaps the most popular feature, though, says Coovert, is "The Everyday Gourmet," where Jim Coovert provides one of his favorite recipes. (A mouth-watering recipe for chicken, andouille sausage and tasso jambalaya is included in the fall issue.)
Printcom often places inserts in the magazine. The fall issue included a promotional products catalog featuring corporate gifts, tote bags, apparel and holiday cards. The spring 1999 issue included a survey asking recipients to rate sections of the magazine. Coovert is eager to receive responses and gauge if her decision to outsource the magazine to Szerney-Klein was worthwhile. Her instinct is that is was.
"I've found a way to get the magazine done right with a minimal amount of work," says Coovert, who outsources the design and mailing in addition to the writing. "I've delegated the mechanics so I can concentrate on the vision." A 4-color magazine is expensive, but Coovert is convinced it's a valuable marketing tool that enhances Printcom's image. And Coovert firmly believes a company should be ambitious when selecting a corporate image, then strive to reach it.
"When we started the old newsletter, it gave customers the perception that we were bigger than we were," says Coovert. "By the time we switched to the magazine, we were that big. Now the magazine gives the perception that Printcom is at a higher level than it is. And we'll get there."
PERSONNEL
Training Sales Reps Can Be a Joke
Making a sales presentation can be just as intimidating as doing stand-up comedy. You can rehearse your material for hours, but once you get in front of the audience, who knows what will happen? Gary Thormodsgaard decided to prepare his sales reps for customer meetings by sending them to a comedy workshop. "True comedy is really communication," says Thormodsgaard, vice president of Direct Color, a commercial offset printer in Long Beach, Calif. "Many of the principles in improv comedy are used everyday in business."Thormodsgaard and about half of his 10 sales reps have attended a workshop sponsored by ExecuProv, which teaches business people improvisational skills. The one-day workshop includes exercises designed to help people become more comfortable giving presentations, improve their listening skills and understand their audiences. Thormodsgaard says it's common for sales reps to become flustered when sales presentations take an unexpected turn. ExecuProv has helped Direct Color's staff overcome those problems.
During one exercise, participants talk about everything they did on the weekend. As they describe details of a typical weekend, the instructor calls out emotions, such as anger, elation and sorrow. The participants must continue describing their weekends using that emotion. In another exercise, four people line up to tell a story. The first person starts with the word "the," the second person continues the story with any word they choose, the third person does the same and so on, until the group has created a story.
"The workshop helps give sales reps more comfort in uncomfortable situations," says Thormodsgaard. As a bonus, he says, some sales reps gain a better sense of humor that benefits the business. "Everybody likes to laugh," he says. "When you can make a customer laugh, they tend to relax."
Despite the focus on fun, Thormodsgaard realizes that printing is serious business. "There's a place for technical training," he says. But the ExecuProv workshop helps build sales reps' "presentation character," he adds, an equally important trait. "People will buy from you when they trust you," says Thormodsgaard. "Forget your technical training—if they don't like you, they won't buy from you."
Sales Compensation in the Printing Industry The Printing Industries of America, Alexandria, Va., surveyed more than 500 printing firms representing more than 1,600 sales representatives about how they compensate their sales staffs. According to the survey, more companies today are offering salaries, alone or in combination with other compensation methods, than in the past. Here are some of the results:
Top Compensation Formulas
Commission Only 36 percent Salary and Commission 25 percent Salary Only 19 percent Salary, Commission and Bonus 8 percent Salary and Bonus 7 percent Commission and Bonus 5 percent Recruiting Methods
Where do printers find new sales representatives? According to the survey, these are the four major hiring types:
Experienced sales reps from other printers 67 percent Employee referrals 31 percent Experienced sales reps from other industries 27 percent Recent college graduates 9 percent Numbers exceed 100 percent because multiple answers were allowed.
For more information or to order a copy of the survey results, call PIA at (800) 952-4294. It costs $125 for PIA members and $250 for non-members.
Internet.now
This Database is for You!
Question from a DMIA distributor: "I really like the two-sales-ideas-a-day feature, and the capability of printing out sales sheets on the products. Is there an archive that can be accessed for earlier ideas, so we can print out ones that we might have missed? And if so, can we personalize those like the ones featured today?"Absolutely! Here's how:
This question refers to DMIA's AM-PM service, which showcases two new sales ideas every business day on the DMIA home page. Each idea features a photo of the product, features, benefits, technical information, types of prospects who might buy it and more. This members-only service also gives you the capability of printing out customized sell sheets to leave behind with your customers and prospects.
Access AM-PM from the right hand side of the home page. Click on the word "search" to go to the AM-PM database and choose one of several search options. The simplest search method is to browse an alphabetical list of every product that has been displayed. You can also sort products in several ways: by vertical market (financial, hospitality, medical, etc.), by client type (ad agency, auto dealership, bank, etc.), or by job title (administrator, building manager, chief of security, etc.).
Here's an example. Let's say I specialize in hospital accounts, and I have an appointment to see my contact at a local hospital. By searching on the "medical" vertical market, I get a list of 40 products from which I could select three or four that might interest my client. Maybe the ideas relate directly to the reason for the appointment; maybe they relate to a previous discussion. Or, maybe they show the client that I have capabilities beyond what I currently provide or what we've previously discussed.
You can mix and match search terms. For example, you can search both the associations vertical market and the computer vertical market to retrieve all 22 products listed for both categories—seven for associations and 15 for computer. You can narrow your search of a vertical market by specifying a client type or job title. Finally, you can search by a word or phrase. Searching for the word "label," for example, retrieves more than 30 products.
If you have any questions about DMIA's Web site or the Internet in general, contact Brad Holt, DMIA's Vice President of New Media, at (800) 336-4641, or email him.