Is your business growing at optimum speed and strength using the six Ps?
The six Ps (people, process, product, proprietary, patrons, and profit) are the most important factors to consider when evaluating and preparing your business for sale. Seiler Tucker however, is the only firm that uses the 6 P method.
If your business is deficient in one or more of these areas, it’s not functioning at full value and won’t reach its maximum sale price. The six Ps are the cylinders in your business’s engine working to drive value. Many businesses don’t operate on all cylinders; instead, they’re sluggish, they waste fuel, and they break down.
You can avoid this inefficiency by tuning up your business using the Six Ps Method. Your mergers & acquisitions (M&A) advisor can help you analyze which of your Ps need to be tuned up so your business can operate at peak efficiency. Following the Six Ps Method will take your business wherever you want to go.
FACT: Buyers will pay top dollar for businesses that operate at optimum efficiency on all of the six Ps.
Breaking Down the Six Ps
Do you have the right team? Buyers are looking for a business, not a job. They don’t want to buy your company and immediately start running it. For a buyer to consider a business sustainable, it must have the right people in place so they don’t have to invest time and money to hire and train employees.
Does your product have a niche or is it intellectual property? Is it unique and in demand? Consider Blockbuster Video, which had a great product in its heyday, but ran into the problem all companies face when they don’t continually innovate and market: slowly fading away from consumers. Blockbuster watched Netflix become more powerful, but did nothing to remain competitive. As a result, they became obsolete.
It’s important to ask yourself if your industry or product is on the way up or on the way out. If it’s on the way out, that doesn’t mean you should sell your company to some uneducated buyer; instead, innovate and market your business to keep it relevant and out of bankruptcy. No buyer will purchase a company that’s going to be out of business in a couple of years, so make sure your company’s niche has staying power.
Is your process efficient or productive? Most people don’t think about processes when selling a business, but they are essential to building profits. A great product can’t save a company that doesn’t have the proper systems to market that product, collect payments, or schedule meetings with clients.
Does your company constantly reinvent the wheel instead of having a standard system for running day-to-day and long-term operations? Buyers want to be sure that your company runs efficiently and consistently.
Do you have intellectual property such as brands, patents, trademarks, databases, and contracts in place? Anything that makes your company special and drives up its value is proprietary. You could even have proprietary assets you haven’t considered, such as customer databases, which are often overlooked and undervalued.
In 2014, the instant messaging service WhatsApp had over a billion users. Facebook paid $19 billion for it because its database could be monetized. Buyers are looking for the edge, or competitive advantage, that sets your business apart from your competition and provides an opportunity to exploit.
Do you have loyal clients who will go out of their way to purchase your products and services? Is your customer or client base diversified? A sustainable business is nimble and can pivot when necessary; a diverse client base makes this possible.
The 80/20 rule says that 80 percent of your revenue should come from just 20 percent of your clients. If that 20 percent all comes from the same background and something happens to that sector, 80 percent of your revenue is at stake. You can always lose a single client and recover, but if most of your revenue depends on a single client or single category, you’re tying your fortunes to the behavior of that industry.
Make sure to diversify your client base.
Are you operating at the highest profit margin for your specific industry? Is money flowing in and out of your business to maximize profits? If you’re spending all your profits on assets and inventory, but your cash-flow isn’t providing the money you need to live on, you’re not profitable.
Why would a buyer be interested in a company that doesn’t make money?
The only buyers interested in buying an unprofitable business are turnaround specialists and, perhaps, competitors or strategic buyers, but only if they can find a way to monetize any of the six Ps.
The higher the profits, the higher the sales price of your business. Don’t limit your buyers to turnaround specialists by being unprofitable.
Putting the Six Ps Into Action
The one P that buyers will not pay for is potential.
Many owners with struggling businesses say their company has potential. While buyers want a company with growth potential, they’re not going to pay a premium for it, as they’ll have to invest additional time and money to make that happen.
Ask yourself how many of the Ps are strong in your business and how many you still need to strengthen. Be honest. We find that many companies operate on typically two to three of the six Ps; very few operate on all six all the time.
Make it your mission to strengthen all six of your Ps. When you have all your Ps in place and functioning properly, you’ll be ready to evaluate your business. Then, your M&A advisor can help you sell it for the highest price possible.
Remember, when you can show buyers a business that operates on all six Ps at optimum efficiency, they’ll pay top dollar. Who knows, you might even have a bidding war.