Your business is worth whatever a buyer is willing to pay for it. That being said, it is important to understand how to maximize the value of your business in the eyes of your potential buyer. As my new book Exit Rich explains, one of the essential steps to doing this is understanding which of the 5 types of buyers your buyer will be. Different buyers look for different characteristics in a business. Even more important, however, is learning how to operate your business on all ST 6 P’s®: People, Product, Process, Proprietary, Patrons, and Profit. This is because buyers are willing to pay more for a business that is running on all six cylinders.
The 6 P’s® will help you drive up your business’s value and are a signal to a potential buyer that you have both efficiency and profitability. Here are the ST 6 P’s® explained further:
People
The first P is People, the “Who” of your company. This refers to the management and employees that help run your business day-to-day. Buyers are looking for a business, not a job. Having a tenured management team and dedicated employees in place show that your business is sustainable. This in turn gives the buyer the opportunity to work on the business, not in it, and focus on growing the company. This raises the potential future value of the company and, therefore, the price at which the business is currently worth.
Product
The second P is Product. This refers to the product or service your company offers and the industry it operates in. It is important to determine whether the industry you are in is on the way up or on the way out. Buyers will not want to buy a company that will be out of business in a couple of years. They want to buy a business that is in a thriving industry and will pay top dollar if this is the case. If you follow our advice and AIM: Always Innovate and Market, you will never end up in an industry that is dying.
Process
The third P is Process. Processes are standard systems for running the day-to-day and long-term operations of your company. Processes should be designed with the customer experience in mind. They should be productive, efficient, well-documented, and used to train all employees. A great product cannot save a company that does not have systems to market that product, collect payments due, or schedule meetings with clients. That is why processes are essential to building an efficient and profitable business and will increase the value of your company.
Proprietary
The fourth P is Proprietary, meaning the intellectual property that your business owns. This could include patents, trademarks, branding, prime real estate, customer databases, contracts that are transferable, or anything else that makes your company special or unique. Buyers are looking for a business that has an edge over the competition. Proprietary assets provide this edge and, because of this, will drive up the value of your company.
Patrons
The fifth P is Patrons. Patrons refer to your company’s client base. A sustainable business is nimble and can pivot when necessary. In order to do this, however, it is important to develop a diversified clientele. If your clientele is not diversified, also known as customer concentration, it will be hard to pivot if necessary. The loss of one client or client demographic could send your company to the brink of bankruptcy. Having a diversified clientele lowers the risk of your company going out of business and therefore drives up the value.
Profits
The sixth P is Profits. Most buyers, unless they are Turnaround Specialists, are not interested in buying a business that is not making money. They want a business that will provide them with a return on their investment as soon as possible. Keep in mind that profits are never the problem but are a symptom of not operating on the other 5 P’s. Seeing as most businesses sell for a multiple of EBITDA, higher profits translate directly to a higher selling price.
The 6 P’s are the most important factors to consider when evaluating and preparing your business for sale. They are a sign of positive synergies, which are what buyers are most interested in, and show that a business is efficient and profitable. Therefore, operating on all 6 cylinders will drive the value of your business up. It will allow you to demand a higher sales price, create bidding wars amongst buyers, and ‘Exit Rich’. To learn more about running your business on the ST 6 P’s so you can build a sustainable, scalable, and sellable business that buyers will be willing to pay more for, visit www.exitrichbook.com to preorder your copy of Exit Rich®! Your preorder will include an instant download of the book along with a hardcover copy shipped to your doorstep, a Free Book Membership, and one-month of free access to Club CEOs so you can start working on your business immediately!
Exit Rich®: The 6 P Method to Sell Your Business for Huge Profit
In Exit Rich, author and authority on buying, selling, fixing, and growing businesses, leading M&A advisor Michelle Seiler Tucker joins forces with Sharon Lechter, finance expert and co-author of Rich Dad Poor Dad, to create a must-have guide for all business owners—whether they’re gearing up to sell a business now or just starting to build their company to sell for huge profits in the future.
