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Offered to purchase a post house


Peter Deutscher

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So the man who gave me my start in audio and the studio owner I still work for offered to sell the business to me and my wife (my wife is an editor there that I met at the studio.) I feel honored to have been asked and am seriously considering taking his offer (still crunching all the numbers and figuring out the worth of his business.) We do have regular clients who definitly pay for the day to day operations and bring in a couple of indie films every year. But I wanted to ask for opinions and advice from some fellow production and post-production engineers on this board. This man is close to being a second dad to me so I understand he wants to keep the business in "the family." Any thoughts are welcome. Thanks in advance.

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So the man who gave me my start in audio and the studio owner I still work for offered to sell the business to me and my wife (my wife is an editor there that I met at the studio.) I feel honored to have been asked and am seriously considering taking his offer (still crunching all the numbers and figuring out the worth of his business.) We do have regular clients who definitly pay for the day to day operations and bring in a couple of indie films every year. But I wanted to ask for opinions and advice from some fellow production and post-production engineers on this board. This man is close to being a second dad to me so I understand he wants to keep the business in "the family." Any thoughts are welcome. Thanks in advance.

That's really cool that you have that possibility.  Would your friend stay working at the company after you bought it?  From your other posts it seemed like you were in the SF area--as am I (prod and post sound here since the mid '70s), feel free to call if you want to talk.  (510-528-1679)

phil p

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Take this with a grain of salt.

I do not know of any small post houses in LA that do not fall into one of these categories:

1) They were eventually swallowed up by a larger conglomerate

2) They barely make enough to pay the bills

3) They went out of business

Multiple people have told me “never buy a post house” because even the successful ones have an extremely small profit margin. You need to continually upgrade equipment to remain competitive.

I don’t know what it’s like in SF but I suspect it is similar. Your best bet of those three scenarios would be if some other company decides to buy you out after you buy the company.

My two cents worth. At the very least, you should ask to look at his books for the last several years, going back before the recession began. See how he was doing when the company was at its best.

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Thanks for the advice David. He's going to pull all the books out when we're starting to get serious so I'll have a chance to see how many months they were in the black and red. There are parts of the studio that need to be redesigned a bit and some gear needs to be updated so there's definitely some serious money needed to do this right.

Take this with a grain of salt.

I do not know of any small post houses in LA that do not fall into one of these categories:

1) They were eventually swallowed up by a larger conglomerate

2) They barely make enough to pay the bills

3) They went out of business

Multiple people have told me “never buy a post house” because even the successful ones have an extremely small profit margin. You need to continually upgrade equipment to remain competitive.

I don’t know what it’s like in SF but I suspect it is similar. Your best bet of those three scenarios would be if some other company decides to buy you out after you buy the company.

My two cents worth. At the very least, you should ask to look at his books for the last several years, going back before the recession began. See how he was doing when the company was at its best.

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Take this with a grain of salt. I do not know of any small post houses in LA that do not fall into one of these categories:

1) They were eventually swallowed up by a larger conglomerate

2) They barely make enough to pay the bills

3) They went out of business

Sadly, this is true. I've worked for 14 video post houses in 32 years. At least 7 of them are out of business. 20 of those years were at Complete Post (which was taken over by Technicolor in the last 5 years). The companies that are gone are endless: TAV, Compact Video, Image Transform, Command Video, U.S. Video, Sunset Post, and AME. I know of a few others that are barely hanging on by a thread.

The boutique places stay around for awhile, but their fortunes rise and fall at the whim of the clients. Places fall out of favor for vague reasons, usually related to sales and contacts. It's a tough business -- I'd say 6% or 7% profit is typical in the video post business. My friends in sound post tell me it's not much better there.

--Marc W.

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should you buy a business, any business, is a hugely subjective personal decision, often driven by objective factors.

Sure, you can look at the books (objective, mostly) but do you want to be in the business of being in business??

someone once told me the only reason to have (start, buy, grow, expand, etc) a business, is to sell it profitably!  While I don't agree, it kind of  has a message...

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The other problem with the sound post business is that you always have Joe Blow with a little Pro Tools system in his garage, competing with you on rates. This trend has decimated the music recording business in LA and NY.

But I always believe there's room for somebody good. At the same time, I can't see anybody jumping into the sound post or video post business nowadays, expecting to become millionaires. I think it's possible to make them profitable, but it's not always a great investment from a dollars and cents point of view.

--Marc W.

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Thank you everyone for chiming in. I appreciate all the insight from people who've been in the business to see the change in this industry.

Marc, I completely agree with you and am not expecting to "make it." This post house used to be a music recording studio and has been in place for over 18 years. From what I know, they have enough clients to keep the doors open and lights on. But the owner's never done any advertising or try to market the studio whatsoever (other than put it in the reel directory.) I think there's room for improvement and some of the engineers currently working there don't bring in a lot of their own clients. I know some young engineers who aren't afraid to go fish and find new clients. I'm taking all this in stride and hoping I can build on something that already proven to be profitable. But please, keep the comments coming as all of this is really helping. Cheers guys (and gals.)

The other problem with the sound post business is that you always have Joe Blow with a little Pro Tools system in his garage, competing with you on rates. This trend has decimated the music recording business in LA and NY.

But I always believe there's room for somebody good. At the same time, I can't see anybody jumping into the sound post or video post business nowadays, expecting to become millionaires. I think it's possible to make them profitable, but it's not always a great investment from a dollars and cents point of view.

--Marc W.

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Hey Pete--one thing I couldn't get across in our brief phone call--due to my current need to cough about every 3rd word--was to ask if you wanted a post BUSINESS or a post CAREER.  Taking over a post BUSINESS means you'll spend a lot of time as a businessman that you otherwise might have spent mixing projects.  I understand that all of us are businesses of various sizes, but there is a big diff between a small facility devoted to whatever work YOU are doing (or you and a partner) and a place that has employees, larger square footage leased space, and all the other issues of a normal business.  Are you cool with being a part time mixer and a full time CEO?

There's a guy who posts a lot over on the Gearslutz Post forum--Tom Hambleton ("Minister").  He seems to be doing well as a mixer/CEO in Mpls.--maybe check in w/ him about how it all goes anymore...

phil p

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Thanks for the mention Phil.  And, well, it is Composer, Post Mixer, and CEO.

Peter, I got your e-mail, but don't mind saying a few things publicly here.  Of course, you will need a good attorney, a good bail bondsman and a good butcher.  Ok, well, an attorney and an accountant and maybe a banker.  You also need some other advisor.  The Small Business Administration can set you up with someone to consult.  They may not know audio post, but they may have some good tips.

In your e-mail you mention that you are in SF, but that you want to move to NYC in 2012?  That is not enough time for you to establish this business as YOURS!  Not a good idea, IMO.

Go in with your eyes wide open.  Learn to think through the ramifications of each move before you make it.  Calculate the risks in a sober way.

Here are some other things to consider : this guy you are buying the business from IS the business.  You are not buying a McDonald's franchise, or a Ford Truck, or dealing with a large co. where the brand is larger than the owner or operator.  I am my company (even though I have 4 full-time and 2 part-time employees).  People come to me for what I do.  Change that, and well, it isn't worth the same.  You need to think on this point very carefully.  Looking at his books for the last 5 years tells you something, but will not tell you what happens when client X wants to work with the previous owner and you say, well I am in charge now.  They may think, harrumph, I've always wanted to work with Tony over at XYZ Post, now's my chance.  This speaks to "valuing" the business.  Looking at P&L's, Balance Sheets, trends in the last 5 years and hard assets is not enough to value a business. Sure, i know that there is a suggested % of additional valuation, but, it may, in the end be MORE attached to a person than you want.  Also, one slip, and some clients will be out the door.  Perhaps they already know you and work with you.  But think about how much of an impact he has on his client relations.  In some ways, a post facility is a post facility.  The difference, as the corporate cliché goes, is the people.  (Insert hackneyed and well-worn apothegm about arrows and archers.....................)

Imagine if you took over someone's production mixer business.  What does that mean?  You pay him for his gear?  Do you think all these people he works with now would suddenly be comfortable and interested in working with you?  Would your clients want to suddenly work with someone you sold your gear to?

I can't really speak to the other's anecdotes and recitations of all post houses being absorbed or closed.  I am not saying it is wrong, but every market is different.  It is different here in Minneapolis, than it is in NYC, LA, Barcelona, London, Toronto, or SF, et cetera.  I can only speak from my experience.

Whatever success I have had, has come from long hard work, determination, some thought, some wit, some risks, some advice, and a lot of luck!  Luck comes in all forms.  Lucky to have "some" ability; luck to have my health; luck to have some decent education; luck to have come across jobs and clients such as I have.  And so on.  The other aspect of my ability to at least make a living doing this, is diversification.  I started as a musician, then composer, then sound editor, then mixer.  I worked my tail off at EACH of these aspects of the business so that I could become at least as good as made me comfortable doing it.  I hate lousy, unprofessional work.  I put in looooooooooooooooooong hours becoming better at post.  Let's face it, you have to compete.  But for me, it was more an internal need primarily.  Then I have put in loooooooooooooong hours running the business.  And I have put in loooooooooooong hours learning all I can about my chosen profession.  There have been HUGE sacrifices.  Sacrifices I know many would not take.  Do you know how to do Quickbooks, reconcile the bank account, do payroll, not only pay bills, but look to the future, save, and, take risks?  And at many turns, are you willing to be gouged in order to get something you feel you need, only to maybe have a chance for it to pay off in 3 or 4 or 5 years?  And, maybe even have it not pay off??  You have to become butcher, baker, candle stick maker.  What happens when your employee comes to you and says, well, it's 5pm, I have to go, this job isn't finished because I don't know what is wrong with the computer and I have lost the last 2 hours, oh, and it's due tomorrow???  Do you know how to fix it?  YOU have to be the IT dept., the TECH department, Purchasing, Management. and on and on.  I know how every aspect of my studio works.  But sure, I have experts I turn to when it is beyond my ken and abilities.

Also, as I said, earlier, diversification can help.  I get composing gigs, music mixing gigs, music recording gigs, audio post gigs for TV, for independent film, docs, corporate, we do music library searches, we do work for museums, artists, companies, websites, and on and on.  We don't just do post.  This has kept me busy through economic ups and downs.

Do it if you want to be your own boss.  Do it if you have an intense passion to do it.  Do it if you desire the experience.  There is no ignominy in having it eventually close even though you do your best.  Throughout history millions of businesses closed. And many people rose again to be successful. But don't think for a minute that it will be easy, casual, a small commitment, or insanely lucrative.  I make a decent living, am able to expand my facilities, upgrade them, and plan for my retirement.  At least for now.  That may not be true in 5 yrs or 10.  Dunno.  Been doing this since '91 part-time, then quit my day job in '94.  But for 6 years it was REALLY small and I barely eked out a living.  You do have a leg up on a lot of people. That facilites are built.  You can save money there.  There are some clients in place and you have been working there.  I came from nothing and am completely self taught.

You can't expect to lap up forum posts and really know how to do anything.  You have to do it yourself.  The forums answer some technical questions, software and hardware questions, and occasionally give you a philosophical perspective.  But it doesn't mean squat unless you apply yourself assiduously.

In the end, only you know if you have the fire, the guts, the determination, and the wits to do this.  It doesn't matter what anyone says here, except what you take from it and what you do with it.  Prove everyone wrong by doing it.  Or, look at the immense list of post houses that never made it and closed their doors and see the wisdom in choosing not to pursue this.  You and you alone have to make the leap of faith.

That is, at least, my opinion.  Take it for what it is worth.

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Thanks Tom for all the insight. I'm not taking this decision very lightly nor am I going to sign the dotted line tomorrow. Although there is clientele in place, they could bolt with new owners. However, the current owner now is stepping down as owner because of health issues. He'll still stay as an engineer so those clients would be able to return and still work for...we'll call him Bob. And inn the 5 years I've been there, I only worked part time at the studio so my personal clientele list isn't as extensive. And lately, I've been doing more production work. And there needs to be some work, time, and money put into re-organizing the studio and upgrading. You're probably right that leaving in a year and a half is probably too soon. If I do do this, it's going to take longer than I'm thinking now. But I do appreciate your brutal honesty as you've endured the trial by fire and walked out the other end a better person. This is a tough business and not meant for a lot of people. Hopefully I'll come out the other end, whichever end it may be, a better man.

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Hi Pete,

A couple more thoughts.  Don't know how you are going to pay for the purchase.  Whatever it is, if it is a loan of any kind, remember you have to service that loan.  This becomes another part of your overhead.

Also, I am sure you find this out by looking at the books, but there are a lot of periodic expenses : phone, internet, security system, electricity (in many cases), general business and liability insurance, unemployment insurance, payroll taxes, as an employer you have to match employee taxes and on and on....  As you grow, so do your expenses and not always your profit.  There will be transition and startup costs : lawyer to create the articles of incorporation, the buyout documents, the filing with the state and Federal agencies for your corp. registration and Fed Tax ID.

I have heard, and to some extent experienced that it can take at least 5 years to establish a business and make it successful.

Anyway, I am prattling on.... It can be done.  Others have.  Others will.  But this is not a take the money and run situation.

Good luck in your decision making!  As you say, it is all experience, whatever you decide.  People learn from mistakes and failures as well as success.

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I have heard, and to some extent experienced that it can take at least 5 years to establish a business and make it successful.

I was told that once by a small business bank guy, who warned that almost no businesses make a profit in the first five years. I bet that still applies if it's an old business being taken over.

But if it's something Pete has passion for, and if there's an existing clientele, and if things look reasonably positive... what the hell. Sometimes you have to go with your gut instincts and hope for the best.

--Marc W.

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  • 3 weeks later...

Just wanted to update everyone on the situation...my wife and I have declined the offer to purchase the post house that was offered to us. We're both planning on moving to NYC in 2012 and didn't want anything hampering that decision. I want to thank everyone who chimed in as you all raised excellent points that I'll be able to take with me as we continue on with our production company.

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