Optimize your P’s and optimize your future company sale
As the advisor to our clients in helping them achieve their future euphoric exit, we regularly wear the glasses of a future potential acquirer in looking at their company. A key part of this view is constantly evaluating the company 4 P’s so that we help ensure they are optimized in advance of an attempt to exit. Here are the P’s and think about each as it relates to your company:
Purchasing – ask yourself, how competitive is our company related to our Cost of Goods sold, purchasing our raw materials and supplies that go into our product as well as the labor needed to make it? Your future acquirer is going to look closely at your Gross Profit and they will know what the norm is in your industry and they will compare yours to the norm. To excite them, you’ll want to show that your team is very efficient, effective and competitive in the purchase of raw materials and application of your direct labor and this will be reflected in a strong Gross Profit.
Pricing – ask yourself, how good are we at establishing and implementing an effective pricing strategy to ensure we are getting optimal price for the value we are delivering to customers? Do we base our prices on our costs or on the value the customer derives from using our product or service? Are we able to command even the slightest of premium in our pricing versus competition? Having a well thought through pricing strategy and being able to show a future acquirer that your company can periodically raise prices with no or minimal customer attrition will go a long way in exciting them.
Productivity – ask yourself, do we track how efficient we are in producing our product or service? Do we know whether we become more or less productive as our volumes increase or decrease? Do we know whether our business is more productive this year than it was last year? A future acquirer will delve in to this area also starting with your Gross Profit. To excite them, you’ll want to show that you measure your productivity and that as the business grows it improves.
People – ask yourself, will my team be viewed as solid in the eyes of an acquirer and will the right members of the team be remaining with the business once it’s sold? Will the acquirer see that ownership isn’t needed for the business to continue growing? Excite your future acquirer by showing that you have the right people, in the right roles, with the right backgrounds/pedigrees and with the right focus.
Use time as a friend to ensure your 4 P’s are ready to impress a future acquirer. Doing so will greatly increase the likelihood of reaching your euphoric exit event as the acquirer will be willing to pay a premium for a business with all 4 P’s being solid.
