According to the Printing Indus-tries of America there were more than 11,000 digital printing establishments in the U.S. in 2007, a number equal to more than 50 percent of the number of sheetfed offset printing establishments. More important, digital printing shipments are expected to grow at four to six percent, while ink-on-paper growth will be nominal, or even negative.
The good news is that many offset printers are embracing digital print, but introducing digital into an offset plant entails not only operational challenges but new demands for the finance and accounting (F&A) team as well. Don’t assume that all you need is a new cost centre and away you go! Failure to address a full range of F&A issues early on (and I include estimating in F&A) may leave your launch into digital in a mess.
Estimates & Quotes
In the offset litho world we use a building block approach to estimating and quoting. That is, we look at the time and cost of labour and materials sequentially in prepress, press and bindery. When you introduce a digital press, you may want to treat it as just another press. And while that may be fine from an organizational perspective, digital presses require a different mindset when estimating costs and preparing sales quotes. Digital work is often more of a commodity, and it is more common to quote based on the desired output rather than on the manufacturing input required. For this, you will have to establish cost and sell prices for various output sizes, and for one-sided and duplex printing on various stocks. You may want to structure your pricing to have increasing prices at low quantities and decreasing prices at higher quantities. For sure you will want different rates for black-and-white versus colour, and heavy coverage may warrant a surcharge (though quoting is often done without seeing copy). Don’t forget you will have to develop pricing for file preparation as well, especially if you are into variable data. And while variable costs such as click charges per job are pretty straight forward, you need to have a good estimate of your projected digital printing activity level so you can amortize appropriately your fixed costs such as equipment lease and supplies.
Paper Inventory Management
For offset work paper is often purchased and charged directly to the job with very little generally maintained as house stock. In the digital world, you will likely maintain multiple house stocks and draw on them through high volumes of transactions. Can your current accounting system and processes handle this activity level? Do you need to establish a stock release system and usage reporting?
Invoicing and Collections
Assuming a successful foray into digital printing, those jobs will likely result in a higher volume of invoices, each with a relatively lower value. If your current invoicing routine is time-consuming, you may want to create a parallel invoicing stream to handle the higher volume of work. There is generally less pre-billing review required for digital jobs as a result of fewer author’s alterations and output-based pricing, so a separate paperwork flow might be doable. Using a different colour docket can ensure that jobs don’t get caught in the wrong stream.
With a higher volume of invoicing, and a likely increase in the size of your customer base, digital production can result in the need for an increase in collections activity. Unfortunately, it takes just as long to make a collection call for a $300 job as it does for a $3,000 job. Also, re-examine your credit granting process; the lead time on digital work is generally less than for litho jobs, and the order may be in hand before credit checking is complete. To address this, you may consider COD or credit card payment as terms for digital.
The Financial Reporting
Even if you consider digital operations as just another cost center, it’s a good idea to periodically prepare a separate income statement for the digital business. Doing so can help you understand the contribution it is making to the business and point out any need to reset costing standards or markups.
The offset print market may not be growing, but it is far from disappearing. Adding digital printing and ancillary services to offset plants offers existing clients a broader spectrum of services, and can introduce your business to new markets. Just make sure your accounting staff are in step with the plans and can keep up!
Bob Kadis, VP Finance & Administration at Harmony Printing Ltd. in Toronto, is a CA with 25 years of print industry experience. rkadis@harmonyprinting.com
