How these book publishers balance business risk and personal security

When it comes to the economics of book publishing, Jack David doesn’t mince words: “It’s a terrible business.”

Mr. David is the co-founder of ECW Press, a Toronto-based independent publisher. The company, now over 50 years old, has published over 3,500 books and hit about $5-million in annual revenue. However, profit margins in publishing can be as narrow as two per cent. After acquiring a book, a publisher may spend 18 months editing, designing and printing, followed by another several months waiting to collect revenue after the book hits the stores.

To help cover expenses, Mr. David has often dipped into his personal finances. When to mingle personal and business assets and when to keep them apart is a common challenge for entrepreneurs. Mr. David says he has been putting his own money into ECW since “day two”, including borrowing against the home he shares with his wife, Sharon, a retired veterinarian.

Because the property is jointly owned, she was required to receive independent legal advice before agreeing to put their home on the line. Her lawyer walked her through what Mr. David jokingly calls the “80 bad things” that could happen: “Is he ever going to be able to pay this off? What if he goes bankrupt?”

Sharon chose to back her husband, but the couple drew some lines around their personal wealth. For example, when they came into an inheritance, they invested the money rather than put it into ECW. They also own Toronto real estate and a cottage, diversifying their assets.

That separation is important for entrepreneurs. “You can’t put all your eggs in one basket,” says Catherine Metzger-Silver, a financial advisor with Edward Jones in Kentville, Nova Scotia. “There’s so much risk management involved.”

Today, ECW is one of Canada’s biggest trade and academic publishers, but getting there has been marked by financial uncertainty. In 2001, both its Canadian and American distributors went bankrupt, leaving the company without money it was owed.

Around that time, Mr. David took a gamble on a manuscript by Neil Peart, drummer for the band Rush, scraping together the money for the advance fee. The band went on tour, which helped promote the book Ghost Rider: Travels on the Healing Road. It has sold roughly 250,000 copies to date.

“You get enough of those hits, you get new books you want to publish,” Mr. David says. “That’s what keeps me involved – apart from the fact that my mortgage is on the line.”

Ms. Metzger-Silver often hears entrepreneurs say, “my business is my retirement”. But if an entrepreneur can’t find a buyer, or the company sells for less than expected, they may have little to fall back on in their later years. She says that makes it especially important to build wealth throughout their career.

David Caron, part of ECW’s next generation of ownership, is walking the same tightrope between investing in the business and protecting personal finances. He joined the company in 2004 when he was in his mid-30s with two children, aged six and three, and is now co-publisher with Mr. David.

No matter how ECW performed, Mr. Caron and his wife set a minimum amount of household income that needed to be protected, covering their living expenses, mortgage, their children’s post-secondary education and their own retirement contributions. “We’re equal partners in this, that’s my rule of thumb,” he says.

At ECW, Mr. Caron pays himself a salary. “The idea of me taking a dividend – I just keep thinking about the other people at the company,” he says. “You’re constantly reinvesting everything else back into the company.”

Mr. Caron plans to stay in publishing for years to come, but is already planning his eventual exit. His experience buying ECW and, more recently, buying majority ownership of Annick Press has shown him that a well-planned succession can take a decade. “If I want to think about somebody taking things on when I’m in my late 60s, the time is now,” he says.

When selling a business, Ms. Metzger-Silver recommends allowing plenty of runway. “The day you open your business is the day you plan the exit. You never know where life will take you.”