Small businesses are the backbone of our economy. Wealth is mainly created when an entrepreneur sells their business to the right buyer, at the right time, for the highest possible price.
Unfortunately, however, too many entrepreneurs fail to properly plan their exit strategy from day one, inhibiting them from creating the underlying foundation, systems, and structure needed to build a business that will attract one of the five types of buyers. According to Forbes, 8 out of 10 business do not sell.
This is where Exit Rich® comes in. Exit Rich is an Inc. Original and was co-authored by Sharon Lechter, the co-author of Rich Dad Poor Dad. It is the must-have guide that every entrepreneur needs that teaches them how to build a sustainable, scalable, and sellable business. One of the main topics covered in the book is Michelle Seiler Tucker’s ST 6 P Method®. The ST 6 P’s® are the six cylinders that every business should operate on that are essential to building a profitable and efficient business. They will help owners attract a multitude of buyers and create a bidding war on the sale of their business, further driving up the sales price. The 6 P’s are as follows:
- People: It is pertinent for business owners to evaluate the people in their business to ensure they have the correct team members in the appropriate seats. Once they have done this, then they can ask themselves the “WHO” question. Who is the best at dealing with customer relationships, accounting, marketing, etc? The key here is that the owner should not be next to the WHO because the business needs to have the ability to run without the owner. Buyers are interested in buying a business, not a job. Therefore, having the right people in the right seats is essential to maximizing value.
- Product: Product pertains to both the product/services your company offers and the industry you are currently operating in. You should look at your business from an outsider’s perspective and ask yourself if your industry is thriving or dying. Is your product on the way up or on the way out? Does your company service a niche? Buyers are not looking to invest in a company whose product is at risk of becoming obsolete.
- Process: Processes are often overlooked but are one of the most crucial P’s. Have you designed your processes with the customer experience in mind? Are they well documented and efficient? Processes can make or break the sale of your company as they are essential to decreasing overhead and building profits.
- Proprietary: Proprietary assets, such as brands, trademarks, patents, databases, contracts in place, IP real estate, etc., can act as one of the largest value drivers for your company. Take Apple, for example, the most valuable brand in the world according to Forbes. Apple’s brand alone is valued at $241.2 billion. Buyers are looking for a competitive advantage when buying a company, and proprietary assets are a great way to stand out over your competition.
- Patrons: Patrons are one of the most important aspects of your company, as customers drive revenue. Without customers to fuel your business, it will run out of gas. The 80/20 rule says that 80% of your revenue comes from just 20% of your customers. If this is the case, and something happens to that 20%, the majority of your revenue is at stake. You should ask yourself; do you have customer concentration or customer diversity? Do you have a loyal client base who will go out of their way to purchase your products and services?
- Profits: Profits are the most profound P, because without profits your company is not sustainable. Buyers, unless they are turnaround specialists, are not looking to buy a company that is not profitable. It’s also worth noting that most valuations are based on a multiple of EBITDA. With that being said, it makes sense that the higher the profits of your business, the more your business will be worth. You should also ask yourself; do you have multiple congruent revenue streams and residual income? Remember, however, that profits are never a problem, but a symptom of not operating on the other 5 P’s.
As stated before, every business owner should run their business on the ST 6 P’s, as these are the key components the five types of buyers will look for in a business. They will help owners attract a multitude of buyers and create a bidding war on the sale of their business, further driving up the sales price. Following the ST 6 P Method is essential to maximizing the value of your business and exiting rich. For more information on the 6 P’s, and Michelle’s other industry secrets, check out www.exitrichbook.com. According to Steve Forbes, “It’s stunning that so many business owners end up leaving so much equity on the table when they want to cash out. That’s why this book will be a gold mine for these entrepreneurs.” Preorder your copy today!
Written by Michelle Seiler Tucker.