Build Your Business: Management

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March 16, 2015

I would venture to guess that most shops in this industry have something in their facility or storage unit that is paid for but is not earning money.

Sometimes this happens because of a higher-than-perceived learning curve, which left the buyer frustrated and unwilling to invest more time and resources to get this asset working. Unfortunately, this is a common scenario with digital direct-to-garment printers, but it also happens with other equipment. A screen printer may buy an embroidery machine or any type of decorator may buy a vinyl cutter or sublimation printer thinking he will use it.

Industry newcomers also often find artwork to be a major stumbling block when buying equipment. This is a common problem with entrepreneurs who come to trade shows thinking they want to do apparel decorating. They watch a digital printer produce beautiful samples during a show, but when they set up a machine in their shop, they wonder why the 72 dpi image from the Internet looks terrible. It’s because nobody told them that good artwork is necessary for a good print. This entails hiring a graphic artist or purchasing graphics software and learning how to use it, which is way more than they bargained for.

Even an experienced embroiderer may struggle with digital printing work because of the artwork requirement differences between the two disciplines. With embroidery, the business model used today is to get a scan of a business card or low-resolution vector art and send it to a digitizer, who sends back a ready-to-sew file. If a digital printer or other equipment is purchased with the expectation that it works the same way, decorators soon learn that this is not the case.  

A third reason a capital investment may end up languishing in a corner is that the buyer doesn’t know how to sell this new capacity, or he purchased it without figuring out how it fits in with what his shop already offers.

DON’T BUY FOR THE WRONG REASONS
Have you ever purchased something out of machine “lust” or just because you wanted it, rather than because you had a business plan on how to make money with it? I admit I am as guilty as the next guy to succumbing to finding a deal I could not say “no” to at an auction, on eBay or Craig’s List.

To no one’s surprise, this behavior has a number of negative consequences. One downside is the space the new machine occupies. For most shop owners, space is an expensive luxury. The second reason is the purchase sucks up your most valuable tool: cash flow.

An example is a screen printer who gets told by his accountant in December that, for tax reasons, it would be a good time to make a capital investment. This decorator had previously thought about bringing offering embroidery services a number of times, but never got around to taking any action.

Now, motivated by the opportunity of a tax break, he decides to purchase a 4-head machine.

The machine arrives and is put into production by the end of December in compliance with tax law requirements, even though nothing else has been done to get the ball rolling on the orders this machine can fulfill. The winter months pass with no progress made on marketing or selling the new embroidery capacity and, in the meantime, the money spent on it no longer is available.

Adding to the cost is the fact that insurance had to be purchased to cover at least 80% of the replacement value, and that bill is getting paid each month without any sales to offset it. In some scenarios, a full year may pass before an owner finally admits he’s never going to invest the time and resources to make a return on this whimsical investment. Unfortunately, he’s stuck with an asset on his books that is not producing, and depending on what was purchased, the machine may have dropped in value.

A tax advantage is worthwhile only if the equipment is producing and the business is making a profit. If the machine is not generating income, there is no advantage to getting the tax break. Because of this, business owners should take a hard look at everything in their shops and ask themselves, “Am I getting my full value out of every piece of equipment?”

SELL OR SCRAP?
Over time, most shops upgrade equipment, which means a decision has to be made about whether to keep or get rid of the older model. Naturally, when capacity is being added, the old machine is still in use; however, what do you do with the still-working automatic press that doesn’t meet your shop’s current needs? If the space is available, most shops will move it out of the way to be dealt with at a later date.

While social media and e-commerce sites make it easier to find buyers for used equipment, in some cases, it should be hauled off to a scrap yard. If you sell it, you will have to disassemble it for delivery. This must be done in such a way that it can be re-assembled, which is a time-consuming hassle.

You always can say you’re selling it “as-is” but then you run the risk of selling it to someone who has no clue what he is doing. The next thing you know, you are spending inordinate amounts of time helping this guy get it set up and running, and maybe even assisting him in getting started in the business. In the end, it’s not worth it.

I’ve got a great example of this in my shop. I have a small working automatic press that I tried to sell numerous times, including to an equipment broker. However, it needs a set of squeegees, flood bars and pallets that cost more than what the machine is worth. It would be valuable as a set of spare parts to someone with the same model, but the cost to crate and ship it also would cost more than the machine is worth. The best solution in this case is to have it hauled off to the junk yard.

CONDUCTING AN EVALUATION
Some decorators are disciplined enough to do their own shop evaluations, but most are not. I have found that many of us have an entrepreneurial mindset, which really turns out to be a disguised form of attention deficit disorder. Any email, phone call or new toy will distract us from focusing on the job at hand, namely what to do about that piece of equipment gathering dust in the corner.

For this reason, I suggest recruiting someone who is not involved with your company on a day-to-day basis to be your evaluator or accountability partner. This should be someone to whom you are comfortable talking and who can give an honest evaluation without the risk of offending you. Perhaps you can choose someone on your business team. This includes your lawyer, banker, accountant or insurance agent. If you have a business coach or are part of a business networking group, these also might be options.

You want someone to walk around your shop with you and make you feel guilty. Establish these rules:

• The evaluator will tour your shop and ask questions about anything. The shop owner must answer them.
• The evaluator should have the shop owner justify everything.

Questions might include:

• What does this do?
• Why do you have two of these?
• Why is this positioned over here so that your employee has to walk across the room to use it?
• Is this dusty, dirty thing here being used for something?
• What’s in these boxes?

Let’s say the evaluator notices you have an unplugged exposure unit in a central place on your production floor. When asked, the owner says, “We image our screens using a computer-to-screen system, but if that breaks down, then we need this exposure unit as a backup.”

Next, the evaluator asks, “If you are rarely using it, why is it taking up prime space on your production floor?” And the owner responds, “Well, the plug is here.” And the evaluator replies, “Wouldn’t it make more sense to put in on wheels or a pallet and move it out of the way until you need it?”

This is the type of experience you hope for by bringing in an evaluator. When it’s pointed out to you, you have to agree that it makes a lot of sense, even though it never occurred to you on your own. The result is you free up prime space that allows you to be more efficient or productive.

To ensure the success of this project, you must listen to this feedback with an open mind. Do not waste time being defensive. This person’s purpose is to point out mistakes or areas of improvement, so you must have respect for those opinions.  

LEARN TO SELL
During this evaluation process, you  hopefully will identify any equipment that isn’t being used to full capacity. The next step will be deciding if you want to get rid of it or make a commitment to making it productive. In many cases, this simply will be learning how to sell this new service to your existing customers.

I have found samples to be one a highly effective way to sell decorated apparel. For advice on selling samples, see my article “Your Digital Printer Can be a Money-Maker” (Impressions, February 2013.)  

There are a number of benefits your shop will realize if you engage in this exercise. It may force you to get going on turning a “toy” into a money-maker. Or it will motivate you to get rid of a liability that is not only wasting space, but possibly electricity, insurance costs and — if it’s a digital printer — maintenance. Leaving a digital printer unused can cause a host of problems with ink clogging and other issues.

Additional unused equipment poses other challenges. Even if you are only spending a few minutes a day dealing with it, this time still adds up during the year. Take my advice and identify those areas in your shop that need addressing and plan on having a happier, more profitable 2013.

Greg Kitson is founder of Mind’s Eye Graphics, Decatur, Ind. For more information or to comment on this article, email Greg at greg@mindseyeg.com or visit mindseyeg.com.

Hear Greg speak on apparel decorating topics at the 2015 Imprinted Sportswear Shows (ISS). Reduced workshop and seminar rates are available if you preregister: issshows.com. — J.B.