2023 continues as a fourth off-trend year. The overall increase in the number of books published per year, dwindling retail shelf space, discoverability concerns, and supply chain adjustments are projected to continue in our industry. You may now be considering alternative future strategies if your sales continue to drop below expectations and your cash flow becomes tight.
Realistically understanding the value and position of your company and assets in the larger market can help you choose a path forward to continue, sell, wind down, or possibly close your business.
These are incredibly personal and complex decisions to address, both emotionally and professionally. Publishers are often entrepreneurs who have contributed a substantial amount of money to creating and growing their list of titles, which often reflect the personal interest and mission of the owner.
Begin by establishing and understanding the existing value of your organization and/or assets. Here are five essential areas to factor. This is a valuable exercise to work through regardless of the outcome, and an internal annual review is highly recommended. See the list of standard documentation at the end of this piece as a beginning reference.
1. Company History, Reputation
Begin by creating a summary of your company, including relevant points such as history, ownership, unique qualities, and any additional items you believe are key items in the success of your organization. What are your subjects and product types? Have you developed any technology or proprietary systems? Are there any recent or significant changes in the company or the market that affect your company and/or product?
Does your organization operate for profit, mission-based, nonprofit, or contributing to a larger organization? How has your company grown in terms of its reputation in the marketplace?
2. Financial Position and Business Model
Be prepared to discuss key financial points of your company such as sales, profitability, assets and liabilities, and other relevant data. Monitor and be aware of your revenues, inventory value, accounts payable, royalties owed, etc.
Financial records should be clean, quickly retrievable, easy to understand, and tied out. The state of your documentation can directly influence the value of your organization. In general, up to five fiscal years of accounting are required to create a holistic view of the company.
Is your business model transferable to another company, or is it a more unique hybrid structure? Can you easily identify trends from your data regarding growth, products, and markets to establish reliable forecasts?
How is your company structured? What is your form of business, and where is your business registered? Options include corporation (C or S), limited liability company, partnership, or sole proprietorship. Also specify ownership shares and percentages if there are multiple owners.
Be able to summarize internal and external workforces, facilities, your author, and/or work-for-hire agreements. Are there any threatened or actual legal action within the past three years?
4. Sales and Distribution
Describe your sales force, efforts, and distribution models. Include information on location of inventory, approximate inventory levels, etc. How are your products distributed, and how do your sales efforts complement your distributor’s efforts? Can you describe your historical sales trends, and is there a forecast for current or future years?
Be able to identify bestselling titles, major customers, and key sales channels. Who are your most similar competitors in the market, and what separates your product as unique? Do you maintain any unique or non-standard sales channels or customers?
Breaking apart your list in a variety of ways will also help identify areas of your list that are successful versus those that need improvement. Consider the quality, depth, and availability of product lines, and determine focus and niche. How strong are your backlist sales compared to your frontlist, and what percentage of your revenues are dependent on each portion?
What is the overall process of selling a book through to customer delivery? Product distribution and successful supply chain implementation are increasingly important as more books enter the market each day. Are there other levels or functions you can add to improve value and diversification in the marketplace?
5. Contracts, Files, Documentation
As with financial documentation, the strength and clarity of your contracts impact your company’s value. The assignability of author and intellectual property contracts is paramount. The more rights the publisher owns for a title, the higher the value. Rights include multiple media formats in addition to print, and across multiple territories if not worldwide.
Documentation should be digitized and easily accessible. Contracts, procedures, and consistent data-keeping will all add value.
Time to Strategize
Consider your position for future planning and strategy.
Should I Sell?
If you were to sell, what exactly is for sale? The assets or the whole company? Is there any portion you wish to retain? Have you been approached in the past by interested parties, and do you maintain positive relationships with other publishers in your niche? Positive interest in your list can be an indication of the saleability of your organization, and your immediate publishing community is likely to be supportive and include a potential buyer.
If choosing to sell, should I hire a broker or consultant to assist with the process? This depends on the revenue size of your company. When our team takes a company fully to market, most buyers are looking for larger companies each year, often with a minimum required revenue of $2 million. If your company is smaller, then hiring a consultant to assist with the process may be a better solution. Remember there will also be legal and accounting costs.
Time, labor, and the process involved in selling will require extra support from your staff. Keep in mind your daily work requirements and enlist support if possible from trusted members of your team. The buyer will also be investing heavily in their time, staff, due diligence steps, and potential integration, which factors in heavily when they look at their return on investment. Clear and prompt communication between parties should be expected.
Should I Wind Down?
Upon completing the exercise above to value your company, if selling is not a viable option, then winding down may, over time, produce the maximum amount of value. To begin the process, review and adjust fixed and variable costs, reduce staff, exit physical office space, and audit all your digital subscriptions and accounts to minimize expenses.
Focus your list as much as possible if you continue to produce a frontlist and ensure your best-selling titles are available to purchase. Physical inventory is often an area that can be reduced. We suggest working with your printers and distributors to review your print model.
Should I Close?
This option is unfortunately quite common and can occur for a variety of reasons. Publishing itself carries a high amount of capital investment with a long return cycle, and maintaining even a small list can be costly. Even small interruptions in the supply chain or problems with your titles can substantially impact your cash flow.
Hopefully, you can plan a closure instead of an emergency, but these are common, too. Is there a succession plan you can put in place now that will help alleviate issues in the future?
If your best solution is to close, first discuss it with your attorney, accountant, and advisers. They can help develop a plan for contacting authors, vendors, and other stakeholders.
These decisions are always very emotional, complex, and stressful. We suggest you speak with your accountants, attorneys, and trusted colleagues as you choose the best option forward.
Standard Data Request List
Initial list of items to provide to your data room.
For Executive Summary
- Catalogs in PDF form
- Identify 10 best-selling products and provide display images in .jpeg or .png format
- Additional product images as appropriate
- History of the company, if available
- Audited financials for prior five years or tax returns
- P&Ls and balance sheets five years plus YTD
- Accounts receivable listing as of EOY and latest EOQ
- Inventory schedule and value as of EOY and latest EOQ in Excel. Describe costing method.
- Inventory aging, or report with costed inventory and 12 months’ sales history
- Accounts payable listing as of EOY and latest EOQ
- Identify accounting system and version in use and host
- Sales for five years plus YTD gross, returns, and net, in units and dollars for each of the following areas:
- By product
- By customer
- By channel
- By geography/territory
- Organization chart with titles or roles, without names
- Listing of employees with title, hire date, salaried or hourly, FTE, rate, or salary, identify key employees to retain and those potentially willing to remain under new ownership
- Summary of overall annual benefits by expense category and comparison to total wages
- Legal form of business and listing of owners
- Listing of any resolved, pending, or expected legal matters for the last three years
- Copy of media perils or liability insurance policy
- Key operating agreements including domestic and foreign sales distribution agreements, sales representative agreements, employment or non-compete agreements, leases, or other material agreements.
Products / Titles Information
- Standard author/developer/creator agreement template
- Listing of all products/titles under agreement with product item #. Identify assignability
- All author/developer/creator agreements
- All work-for-hire agreements
Copyrights, Trademarks, and Patents
- All copyrights, trademarks, or patents held
- Royalty statements for the last two years
- Schedule of royalty advances outstanding
- All subsidiary or translation rights sold and listed per the template to be provided
- Schedule of work in process for development
- Schedule of manufacturing orders with delivery dates
- List of URLs owned and domain name registrations