Defining Buy-in Value
By Natalie Richter
Today Natalie Richter Global is proud to define ‘Buy-In Value’, a similar concept to goodwill, for measuring otherwise intangible value arising from international assignments. We define ‘Buy-In Value’ as:
Buy-in Value is the economic benefit arising from the behavior and actions of individuals that are not always capable of being individually identified and separately recognized.
The accounting concept of “goodwill” had been around long enough by 1882 for a definition of it to appear in Richard Bithell‘s A Counting House Dictionary published in that year. Over the intervening 135 years it has been hotly debated and its definition endlessly refined. Assigning value to the intangible is clearly not a task for the faint of heart.
Modern formal accounting definitions, such as found in IFRS 3 Business Combinations, have, largely, settled on the notion that whatever premium paid (or discount obtained) over and above the obvious tangible value of a company, during a merger or acquisition, is, by default, the value of goodwill in the transaction.
It’s an unsatisfying definition in many respects, because essentially it fails to actually define goodwill, except to say that whatever someone paid, that can’t be otherwise be explained, must be it. If your sole purpose is how to classify an amount of “found” money, then I suppose it works. But if your CEO asked you for a plan to improve the company’s goodwill by 20%, it doesn’t help you decide where to start. The official IFRS general definition of goodwill is this: An asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognised. (from FRAS Canada, p13)
Buy-In Value, like goodwill, does not have a full and complete list of possible elements, and no absolute value is assigned to any element. The specifics will change depending on the nature of the business and assignment. As with goodwill, Buy-In Value represents a final figure, the sum of the value of component accomplishments as at a particular point in time, typically the end of an assignment. Buy-In Value is fundamentally based on the similar underlying notion that factors such as behavior, reputation, knowledge, values, relationships, and established process all have an impact on business outcomes that not only can, but should, be measured and explicitly valued.
However, unlike goodwill, Natalie Richter Global will elaborate on the concept of Buy-In Value by providing a methodology and process to translate the otherwise intangible into its dollars and cents value, so that it can be used to calculate the ROI of an international assignment. That process is captured in the “Wise” component of the W.O.R.L.D. Wise process.
Over the coming 135 years, Natalie Richter Global will continue to develop and articulate the concept of Buy-In Value and the “Wise” process and tools for calculating it. Our aim is that by 2152 it will be just as obvious a concept, but even easier to calculate and less contentious, than goodwill is today.