Are Customers Intangible Assets?

Accounting is neither an art, nor a science. It's a language. Just like a language, its primary purpose is to communicate. But it can also be used to obfuscate and it's prone to generating woeful misunderstand.

For example, accountants created the notion of "goodwill", "the portion of the book value of a business entity not directly attributable to its assets and liabilities" (says Wikipedia). Basically, when you buy a business, you're not just buying the machines and property and staff contracts - you're buying its supply chain relationships.

It's a kludge, of course. But in customer service terms, goodwill is critical. Great customer service creates and nurtures those relationships that might not appear on the balance sheet -- but they count for a lot in the profit and loss account and they really matter is the business is sold.

So get over to to Charlie Stross's blog and read his frustrations with the way so many corporates treat customer goodwill. He's not an accountant, so he's not speaking their language - he's talking about whether companies make him happy or not. But his point - that there seems to be something wrong with MBA courses if they keep turning out corporate execs who don't give a stuff for customers - is still spot on.

Perhaps if the language of accounting did have a way of valuing customer relationships more accurately, we might get more support for delighting customers even at the expense of additional investment or fewer cost saving measures.

In other words, the answer to the question in the title of this post is "no". Customers are very tangible -- the most tangible thing about any business. That's true no matter what the accounting standards say.