Selling Your Catalog: Prepare for the End Game
Typically, a catalog’s value will be determined by the marketplace, which uses earnings and a multiple of EBITDA to determine that value. To plan for and approach the harvest event or execution of the end game with an expectation different from this reality is to engage in self-delusion. And self-delusion is a terrible place from which to negotiate.
The outcome value of end-game planning can be summed up by the financial reality of the value of a catalog company. A catalog company with exceptional earnings can bring six to seven times its earnings upon sale. A catalog with $2 million in earnings can bring $12 million to $14 million at the time of harvest. The same catalog with average earnings of, say, $1 million, will likely bring only four to five times its earnings. The sale price might be only $4 million or $5 million. Compare the extremes: $5 million to $14 million.
That’s the value of end-game preparation.
The best end game is the one producing the greatest possible amount of wealth and the most favorable tax benefits.
Seven End-Game Principles
Catalog owners who want to harvest wealth now or in the future can benefit from these guiding principles:
1. Pre-determine the end game as far in advance as possible.
2. Describe the end game in detailed, active language, not generalities.
3. Develop disciplined strategies and tactics to efficiently achieve the end game.
4. Communicate to everyone the objectives, strategies, and tactics.
5. Measure the EBITDA (earnings before interest, taxes, depreciation and amortization) impact of every action and decision; stay the financial course.
6. Base the end game in reality, not delusion.
7. Think in depth about the end game and measure your progress in terms of EBITDA at least quarterly.
With these seven common-sense guiding principles and a consistent focus on the value of end-game preparation and planning, the catalog owner should create substantial additional value and wealth at the time of harvest. If the improvement to the multiple of earnings outcome is five times, every $1 of additional earnings is $5 of additional wealth in the owner’s pocket. That could be the easiest money you ever made.