What are the 4Cs of Business Valuation?
When we talk to business owners about the valuation of their company, we make sure to mention the four biggest areas of intangibles, that contribute to 80% of where a business falls in the industry Range of Value (ROV). Within each of these four areas, there are many many different drivers of value, and to simplify it all, these are the umbrella categories.
The Four Capitals of Intangible Value are:
When you look at your business through this lens, think about what your current talent and competency look like. How successful is your training? What level of competency does your management team have? What does your communication look like, and how reliant on key staff members is your business?
When you look at your business through this lens, think about how like-minded your team is and what they all like to do for fun. What is the common language or mannerisms that are spread across your business? Are your employees’ goals aligned in some way with the business goals?
When you look at your business through this lens, consider the inner workings, the operations, and the gears of the business. The sum is greater than its parts, and if the parts aren’t well functioning and well oiled, you don’t have much of a “sum.” Things like systems and processes, IT/data integrations, knowledge base, routines, methodologies, and training programs are all a part of structural capital.
When you look at your business through this lens, you want to be thinking about customer loyalty and tenure. A major risk factor here to consider is customer concentration – the more reliant you are on any 1 customer, the more at-risk your business is. Consider your Net Promoter Score (NPS) as well as predictability and contractual obligations.