Let’s talk about the 4Cs… and what they mean to your business.

As a business owner, do you want to make more income today, and create more business value for tomorrow?  Here’s the secret – manage business value now.
 
But first let's talk about how EBITDA impacts the value of your business.
 
Most business owners, in fact most people, don’t understand what really drives business value and that it can actually be managed.
 
A business that has maximized its value runs better, generates more cash, is more fun and provides numerous options for the business owner as it relates to ownership transition. 
 
The key message here? DON’T WAIT until you are ready to exit to maximize value.  For one thing, it’s probably too late to effectively make an impact; and secondly, waiting is like burning $1000 bills in the trashcan.  That’s just plain dumb.
 
There are numerous ways to value a business, but for argument’s sake, I’m talking about the basic formula of a re-casted/normalized EBITDA times a multiple; or as a formula, EBITDA X Multiple = Value. 
 
EBITDA is Earnings Before Interest, Taxes, Depreciation and Amortization
(aka the cash produced by the business)
 
EBITDA is just math.  There may be some arguments over what should be adjusted and normalized, but in the end, it is a number.  The wild card, and the biggest factor on value is the multiple.  Again, there is math to get to this number (inverse of the capitalization rate), but in general, every industry sells in a range of multiples.
 
How do you achieve a higher multiple in the range, or maybe even exceed the range?  De-risk your business and focus on your intangible assets.
 
Chris Snider, author of Walking to Destiny, states, “Intangible assets are the sum of your company’s intellectual capital, which is divided into four categories known as the 4Cs of capital:
 
1) Social Capital
2) Structural Capital
3) Human Capital
4) Customer Capital
 
I want to start by diving into Social Capital.
 
Arguably, social capital is the most important source of capital in today’s world.  It represents your culture, your brand, the way your team works, the rhythm of your day-to-day operations and communications, and the way you communicate to customers.  You can feel it when a company has strong social capital.  Snider calls it a ‘vibe’.  Employees and customers can feel it too.  Great companies like Apple and Google have it.  Walk into an Apple store and you will know what I mean.  You just sense something special about what is going on.  And it’s reflected in their market value.
 
Focus on your social capital.  Invest in your culture, your brand, and the rhythm of day-to-day operations and communications.  Happy, engaged employees create happy and engaged customers, who return as repeat customers and refer your business to others.   This will have a profound effect on your multiple. 
 
While I find that most business owners do not want to discuss exit planning (feels too final, not mentally ready to look at life after business), they are keenly interested in value acceleration.  Value acceleration is not about the end game
 
It is about what you are doing today to drive value tomorrow, value that in turn provides income and options.
 
This is why getting your hands on the “4C levers” to drive value in your business should be the #1 priority of every business owner. 
 
Click here to catch my video on Social Capital.
 
And stay tuned for the next topic in my 4Cs Series – Structural Value.