80% of Your Company Value is Intangible
Did you know that 80% or more of your company value lies within four areas of your business? These four areas are called the 4 Intangible Capitals and believe it or not....they have nothing to do with your financials!
Just because you are a profitable business, does not mean you are a sellable business. Now don't get me wrong, having a growing trend of profitability over time is very attractive and WILL increase value. But focusing on the below four key areas will help you add massive value to your company.
The 4 Intangible Capitals
Human Capital - this is perhaps the most important one of the four because it's your people, your team, your employees. And people are everything to a business. It doesn't matter if you have the best product or process, if you don't have the right people on the bus, you are in major trouble. Working with people can also be the most difficult to navigate because everyone has their own personality, skill sets, or what motivates everyone can be wildy different. Human capital also measures the quality of talent you have on your team. One of the most difficult challenges for business owners is finding, recruiting, and retaining top talent.
Ask yourself...
- Why would top talent want to join my company?
- What qualities and characteristics am I looking for in a key employee?
- What am I doing to motivate the talent I already have in place?
- In order to retain talented people, am I providing a path for growth as well as retention incentives for my team?
Social Capital - this is the company culture. It's the heartbeat of the organization and fabric that holds everyone together. It's how your team members communicate, how you communicate with your customers, and your suppliers. It represents your brand, how your team works together, and it's the rhythm of your daily operations. This can take years to develop in a business and can be very difficult to transition to a new owner. What I often see when a business goes to sell is they don't always go with the buyer willing to pay the most. If they are in a position with multiple offers, they will often choose the buyer who has the best culture fit to make their interests and values align.
Ask yourself...
- What standards do I hold my team and employees to?
- When a customer walks into the front door of my business, what is the client experience like? Am I adding value and is it consistent across the company?
Customer Capital - Move your customers from being engaged with your company to becoming entangled with your company. Think about the company Amazon. I feel like there is an Amazon box on my front door step every other day of the week. Simply because of the convenience factor. We also use Amazon Prime and Amazon music via our 4 echo dots to play music throughout our house. Can you imagine a world without Amazon?! You get the point. Get your customers entangled with your company. It drives up your value.
Ask yourself...
- What products or services do I offer my customer that they couldn't possibly imagine getting somewhere else?
- What makes my business indispensable to them?
Structural Capital - This is what makes your business run on a daily basis. This is your processes, your documentation, training programs, tools, equipment, real estate, sales process , HR process etc. This is your Standard Operating Procedures. I talked at length about creating SOPs in my podcast, Business Exit Success, episode 4 called How To Maximize the Value of Your Business. When you have strong structural capital, your business success does not depend on any one person's ability to complete a specific task. Why is this so important...
...If you are the owner of a business, your knowledge, skills, and wisdom needs to be documented, to the point it's either on paper, typed up on the computer, or explained via video such that someone else can learn it from you and apply it. To the point where someone can come in and know how to run your business. Doing this makes your knowledge transferable and drives up the value of your business.
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