Valuing a Business
Prequel to post: A BIG thank you to Stone, Rudolph and Henry CPA firm of Nashville and Clarksville. They hosted upperclass students and faculty to a Clarksville office tour and barbecue this evening and were one of three "charter" participants (along with Brown and Brown of Clarksville and the Nashville branch of Crowe Chizek) in Austin Peay's first firm night for accounting students in many years. Obviously, thanks also to Brown and Brown and Crowe Chizek.
Post-barbecue, I was talking with one of the SRH professionals (I believe the name was Karen Plaster) and she said that she had recently attended a conference on business valuation. She went on to explain that business valuation differed from real estate valuation in that the attempt was to determine the overall value of the business, not just the value of the land and building. We then discussed how human capital would be valued; she said that it was difficult but procedures did exist for valuation.
The discussion was of interest to me in part because I am increasingly convinced that users (especially regulators and institutional investors) will want more disclosure of nonfinancial information, especially in the notes to financial statements. In part, I believe that greater disclosure may be expected in the future because the accounting model, which generally handles manufacturing and merchandising businesses reasonably well, strains to capture important information in knowledge-based service businesses. Some of the possible issues where I could see increased demand for disclosure include research and development efforts (and not just costs), human capital (skills and talents of present employees), environmental impact for the business, community participation by the business and commitment to diversity. For the most part, accountants have little or no training in most of these areas--proactivity here requires that accountants develop strategic relationships with human resource experts, environmental engineers and public administration experts.
Post-barbecue, I was talking with one of the SRH professionals (I believe the name was Karen Plaster) and she said that she had recently attended a conference on business valuation. She went on to explain that business valuation differed from real estate valuation in that the attempt was to determine the overall value of the business, not just the value of the land and building. We then discussed how human capital would be valued; she said that it was difficult but procedures did exist for valuation.
The discussion was of interest to me in part because I am increasingly convinced that users (especially regulators and institutional investors) will want more disclosure of nonfinancial information, especially in the notes to financial statements. In part, I believe that greater disclosure may be expected in the future because the accounting model, which generally handles manufacturing and merchandising businesses reasonably well, strains to capture important information in knowledge-based service businesses. Some of the possible issues where I could see increased demand for disclosure include research and development efforts (and not just costs), human capital (skills and talents of present employees), environmental impact for the business, community participation by the business and commitment to diversity. For the most part, accountants have little or no training in most of these areas--proactivity here requires that accountants develop strategic relationships with human resource experts, environmental engineers and public administration experts.
posted by Dan Meyer at 10:47 PM
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