We’ve already discussed the first two Core Concepts of the Value Acceleration Methodology: the 3-Legs of the Stool, and the 5-Stages of Value Maturity. Now it is time to talk about Core Concept #3: the 4 Cs.
The 4 Cs represent the 4 Intangible Capitals that we believe are key to every successful business.
- Human Capital
- Social Capital
- Customer Capital
- Structural Capital
What makes your business valuable? Well, the folks at the Exit Planning Institute estimate that about 80% of a company’s value lies within these four Intangible Capitals*. Understanding the 4 Cs, and how to improve them, are crucial to building value and helping your business to become a leader in your industry.
Human Capital is the measure of talent on your team. As a business owner, you know that people are everything. If you don’t have the right team in place, then it doesn’t matter how great of a product or service you offer. When we think about Human Capital, we need to focus on how to recruit, motivate and retain talent. We also must think about how the team needs to evolve for the business to grow.
Social Capital is everything having to do with your company’s culture. This is a hard Intangible Capital to understand. What is culture anyways? Culture, or Social Capital, is the heartbeat of the organization. It represents your brand, how your team works, and the image of your company that customers hold. Social Capital can take years to develop, and it is often one hardest of the 4 Cs to transition to a new owner. In fact, cultural fit can be a deal killer. That’s why business owners need to seriously consider Social Capital when working on their exit plan.
One of the most effective ways to build value in your business is through strong Customer Capital. We’ve seen otherwise well-run companies valued at unfavorable multiples because of problems with customer concentration or non-sticky customer relationships. It is vital to keep your customer front of mind in all that you do. Force yourself to honestly view your business from the eyes of your customers – doing so will allow you to see how your business excels, and what you may be able to do better.
The last of the 4 Cs may be the most important. Structural Capital encompasses everything that makes your company work efficiently, like your processes, documentation, tools, and frameworks. The best companies have well documented processes that are transferable, so that anyone can walk in and understand how things are done. At the end of the day, you want procedures in place so that your company is not dependent on any one person. Having strong structural capital makes businesses significantly more valuable to potential buyers.
We understand all too well how easy it is to get swept up in the day-to-day tasks that are required to grow your company or even to just keep your company running. But by taking a step back and focusing on these 4 Cs, you can potentially drive profits higher and boost your business’ valuation. Exit planning isn’t a future activity – it is about doing what you can now to add value to your business, so that you are ready and prepared to exit someday in the future. And remember, about 80% of your company’s value is in these 4 Intangible Capitals*.
Learn more on our complimentary webinar by clicking here.
*© Exit Planning Institute white paper “Five Things Every Business Owner Must Know About Exit Planning 5-4-3-2-1”