How to Increase the Value of Your Business Without Increasing Turnover
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Introduction
Building your business’ Intellectual Capital is the way to increase the value of a business because it’s the intangible assets that account for most of the value of corporates nowadays – as much as 70-80%.
Show Notes
It’s important to note that intellectual property is PROPERTY and therefore needs careful handling.
- Focusing on turnover is not necessarily the way to increase the multiple your business might achieve on exit
- EBITDA – with its focus on increasing revenues is not always the yardstick by which a business will be valued
- If there is a strategic fit, and a little competition from another potential buyer in the wings, a buyer may well be willing to pay a significant premium
- Whatever stage your business is at – and particularly if you are at a growth stage or thinking about exit – focus on adding value to your business, you can’t look at IP soon enough
- Examples of Sales Instagram, Whatsapp and technology companies Skyscanner
Intellectual capital includes
- Human – that is the people element
- Customer – all buyers of your products and services
- Structural
- Social
The human element comprises knowledge assets as described in the book Wealth of Knowledge by Thomas A Stewart. Strong customer capital is the value and strength of relationships that a business builds with its customers, and which is reflected in their loyalty to the business and/or its products and services. It’s a measure of the company’s brand. Douglas Atkin in the Culting of Brands maintains that the aim of a really successful business is to create a cult following among its customers.
- Structural Capital - consists of the organisation’s infrastructure, processes and databases that enable its human capital to function. It’s the tools on which the organisation is built. They support the organisation to add value to customers. It includes the capabilities, routines, methods, procedures and methodologies embedded in the organisation.
- Social Capital - refers to what makes social groups function effectively, such as the relationships between the various players, a shared sense of identity, norms and values. It’s a complex subject so a single definition of it is difficult. Social media is a component of this.
The objective when creating a valuable business is to focus on these different forms of capital and replace yourself so that it’s not about you anymore. Focusing on your systems and processes rather than purely on increasing sales and other revenue-generating activities enables you to increase the value of your business.
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