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Feb 14, 201912:25 PMExit Stage Right

with Martha Sullivan

Build your value — Stage three of value maturity

(page 1 of 2)

Growing up, my father often reminded me that there were many levels of good health and growth. He taught me that my physical, emotional, intellectual, social, and spiritual health all contribute to my overall health. If one aspect is way out of balance, my overall health could be compromised. For example, when I burned the midnight oil to get good grades, I was running low on sleep, stressing myself out, and being snarky with others. My intellectual capital was the focus and my physical, emotional, social, and spiritual health suffered.

When I first heard this concept of multiple types of health, I recall being a bit bewildered. As a youngster, I had only thought of health as my physical health, which is very tangible. Either I am healthy, or I feel lousy because of a cold, a broken limb, or something that’s slowing me down. At that stage of my maturity, the intangible aspects of health were far more elusive to me. It hadn’t occurred to me how vital these intangibles would be in contributing to my growth into and through adulthood.

In prior posts, we introduced the concepts of the Five Stages of Value Maturity of a business and its first stages – Identify and Protect. Stage Three — Build — takes the foundation set in the first two stages and turns the focus to various strategic intangibles contributing to the health and growth of your business.

Indeed, your business health and growth has facets that are tangible and intangible just like your personal. You can look at a balance sheet and judge the financial health of the business, which is largely tangible. There are assets that you can count, collect, and touch, and convert to cash. You have tangible obligations you need to fulfill, represented as your liabilities. When you compare your total assets to your liabilities, you’re left with your equity in, or net worth of, the business. This is what you would have left in your pocket after you convert all your assets to cash and pay all your obligations.

The value of your company is usually not the same as company’s equity, which is also known as “book value” or “net assets,” unless you are a very capital-intensive business or facing liquidation. In fact, your net book assets may be as low as 20 percent of your total enterprise value. Why is that?

It’s because of all your intangibles — the health and growth of your company’s human, customer, social, and structural elements. These may be intuitive, but I like to think of them this way:

Human capital — Like your personal intellect and talents, human capital is how well you take care of the mind-trust of your company. It’s how you recruit your talent, nurture their development and knowledge, keep them enthused and engaged, compensate them, and retain them.

Customer capital — How solid are your relationships? Can customers count on you? And by you, I mean the “royal you,” not just you. Can folks count on being able to get in contact with the right resource at the right time to solve their issue? Is their experience with the “royal you” consistent every time? How deep is their loyalty?

Social capital — I like to think of social capital as the company’s personality, style, and, to put it in personal terms, emotional health. In business terms, it is your culture — both inside and outside. How do you set your rhythm, pace, expectations, standards for treating others, and so on? What is portrayed to others? Are you “cool” like Apple? Wicked “smart” like Microsoft?

Structural capital — Your structural capital are your processes, systems, technologies, and know-how that allow you to do what you do so well. They are sustainable and transferable. It’s someone else being able to step in, run the house, and maintain your other capital standards when you’re not there.


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About This Blog

Spending half her career as an advisor to privately-held and family businesses and the other half in CFO/COO roles, Martha Sullivan is a partner and the succession planning practice leader in the business transition strategies group at Honkamp, Krueger & Co., P.C. She and her team have extensive experience assisting business owners achieve their personal, business, and transition goals. “Don’t think of the 'exit' from your business like it’s a four-letter word. Make it your next adventure!”



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