The 4 Cs of Business Valuation
Posted August 27, 2021
The 4 Cs of Business Valuation
You’ve worked for years to build your business from the ground up. You’ve spent sleepless nights working to ensure that you can create a legacy for your family and also provide a stable job for the employees who have become like family. Now, you’re beginning to approach retirement and are asked how much your business is worth. In your mind, the immediate answer is that it’s priceless, but you know that won’t suffice.
If you aren’t sure about the value of your business, you aren’t alone— nearly 98% of business owners don’t know the worth of their business. When 80-90% of a business owner’s net worth is tied to their business, this is not a question you can afford to get wrong. The value of your business will impact your future retirement plans, estate planning, wealth building, and more.
Maybe you can list the company’s ROI over the last ten years and talk about its financial stability, but that does not give the entire picture.
Through a business valuation, we’ll take a look at the 4 Cs to dissect the worth of your business.
Human Capital
People can be your greatest asset. If you’ve built a strong team of reputable and knowledgeable industry leaders, then the new owner will already have a firm foundation when they step in. However, suppose most of your team is also approaching retirement or are unreliable and not motivated to continue pushing the business forward; this is a lower value of human capital and often a red flag for potential investors.
Structural Capital
Structural capital can also be thought of as business processes. Do you have organized operations? Are there playbooks, guidelines, and systems in place to ensure a smooth transition? Suppose you have procedures in place that will allow for work to continue while there is a transition in ownership or the owner being completely removed from day-to-day operations. In that case, this is a boost in your structural capital.
Customer Capital
A prospective new owner will want to know about your client base. How large is your client base? Is it diversified? Is there a healthy mixture of legacy clients and new clients? Building out your client base will help to reaffirm the stability of your business and its future.
Social Capital
Not only do you need good employees, a seamless flow of processes, and a robust client base, but you also need to have a good reputation within the community. Are you known for giving back to the community, providing a healthy work culture, and maintaining ethical practices in all you do? Or are you known for high turnover rates, questionable ethics, and never truly being a part of the community? As a small business owner, the importance of your company’s reputation within its community cannot be overstated.
To get the maximum value for your business, you’ll need to put yourself in an investor’s shoes and think about what they would want to buy. By reducing risk, maximizing profit, and streamlining operational work, you’ll be adding exponential value to your business.
At Thayer Financial, we understand how important it is to know the worth of your business. So, we’ve invested in technology to help ensure our business owner clients have the facts needed to make sound planning decisions. Our innovative technology harnesses the power of big data to deliver accurate and efficient business valuations. If you’re ready to find out what your business is worth, you can start by using our business valuation tool. Thayer Financial is ready to advise you on your business valuation plans from the perspective of comprehensive financial planning. Thayer Financial is your dedicated resource for fee-only, fiduciary advice as financial advisors in Hickory, North Carolina. Schedule an appointment or call us today.
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