Valuations & Acquisitions: Why Deal Due Diligence Is Worth a Try

The result shows the “large” amount of money made through housefile mailings, and the typical loss (or breakeven) recorded by prospect mailings. This helps any investor understand where the money is made and why it might be necessary to spend (invest) in prospecting. Furthermore, this model portrays a generally positive view of cataloging: the ability to manage earnings over the short term through cut-backs in prospect circulation — in poor times (see House Customer vs. Prospect Mailings below).

The P&L formats used are based on historic formats, in which revenue from order shipping expenses (charged to customers) was shown as an offset to the cost to actually ship those orders to customers, the net of which typically was shown in the net shipping expense line of the P&L.

Accounting standards rulings now require shipping revenue to be recorded in the top line of the P&L. You can build the above models either way; the contribution to fixed expense breakeven will be the same.

Larry West is president of West Cos., a New York-based valuations and acquisitions consulting firm. You can reach him at dmgrowth@yahoo.com.