Workforce engagement and valuation

BVWireIssue #205-1
October 2, 2019

valuation methods & approaches
management interview, due diligence, company specific risk

Someday, a “workforce engagement adjustment” will be made to the calculation of the

value of an assembled workforce, say experts in an article in the October 2019 issue of Business Valuation Update. In the meantime, all valuation experts should be taking this factor into account for any business valuation when assessing specific company risk.

We all know the phrase “people are a company’s most valuable asset” and appraisers know how to put a value on a “workforce in place,” but does that really tell the whole story? It does not! Yes, you can go through a cost-to-replace exercise for ASC 805 purposes, and that’s fine and acceptable. But you need to go beyond the calculations and think about how the nature of the workforce drives company value. The current methodology for estimating the fair value of an assembled workforce does not allow for workforce engagement. “Right now, we are a little bit limited with the tools and methodologies that we have to work with,” says Dave Bookbinder. “We can’t actually make those adjustments. But, somewhere down the road, I do believe we will be able to incorporate the engagement factor in our assembled workforce calculation.”

Bookbinder is a valuation professional who has conducted valuations of the securities and intellectual property assets of companies. Among the many types of intangible assets that he has valued are human capital assets (people), and he is the author of The NEW ROI: Return on Individuals. The article goes into detail about what to think about when determining the contribution people make to the value of a company.

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