How do I check whether a print shop’s outsourced jobs hide margin problems?
Separate outsourced work from jobs printed in-house, then compare each supplier invoice with what the customer paid. Check whether the shop adds a markup, absorbs rush charges or discounts to keep clients. Thin or negative margins on outsourced jobs can be hidden inside a healthy overall result.
Ask for a list of every job sent to an outside supplier over a recent period, with the supplier’s charge and the shop’s invoice side by side. Work out the gap for each one. Look at the biggest customers separately, since a shop may quietly keep a large account by passing work through at little profit.
Then ask why the work goes out. Is it a machine the shop does not have, a capacity limit or a habit? If a supplier is a single point of dependence, ask how long the relationship has lasted and whether prices are agreed in writing. A supplier that raises prices could squeeze margins quickly. Include freight, rework and supplier delays in the margin for every outsourced job. The aim is a true picture of what each job earned, so that you can decide how much of the shop’s success rests on partners.
Finally, check how the owner records these jobs. Freight, rework, spoilage and late penalties from suppliers are easy to leave out. Your accountant can rebuild margins by job type and show whether the in-house work is carrying the outsourced work.
Key takeaways
- Compare each supplier invoice with the customer’s invoice, job by job.
- Look at big accounts separately, as they may hide thin margins.
- Ask whether supplier prices are agreed in writing and how long they last.
- Include freight, rework and supplier delays in the margin for every outsourced job.
Related reading
15 pages on the same subject, grouped by topic.
Buying
- Expert answerWhat should I ask about the outsourced work a print shop sends to other printers?
- Expert answerHow do I tell if a print shop’s customer list is mostly one-time jobs?
- Expert answerHow do I judge whether a print shop’s customers would follow it to a new owner?
- Expert answerHow do I tell whether a print shop’s profits will last after a sale?
- Expert answerHow do I find out whether an embroidery shop’s machines are running most days?
- Expert answerHow do I judge whether a fabrication shop’s shop floor layout limits growth?
Due diligence
- Expert answerHow do I tell whether a tint shop’s sales depend on cash jobs I cannot verify?
- Expert answerHow can I tell if a phone repair shop’s repeat repair claims are hurting margins?
- Expert answerWhat should I ask about a sign shop’s unfinished jobs and install schedule?
- Expert answerHow do I check whether a sign shop relies on a few national accounts?
- Expert answerHow do I check an auto repair shop’s job records before buying?
- Expert answerWhat should I look for in a fabrication shop’s quote history versus actual job hours?
- Expert answerHow do I check how much of a machine shop’s work is repeat parts versus one-off jobs?
- Expert answerHow do I see whether a commercial printer depends on a few large print runs?
Sources
This answer is checked against primary sources. Links were last confirmed on the dates shown.
- 01Business Development Bank of CanadaGovernmentWhat is the operating profit margin?
- 02Business Development Bank of CanadaGovernmentHow to conduct due diligence when buying a business
Deavo is an advertising and listings platform, not a brokerage, law firm or valuation firm. This page is general information, not legal, tax, accounting or valuation advice, and rules differ by province. Confirm anything you rely on with a qualified professional before you act on it.