Know-how is often the most valuable asset of an innovative company—its “grey gold.” Yet this competitive advantage remains difficult to protect and to reflect in financial statements. How can this intangible wealth be transformed into a value-generating asset? The answer lies at the intersection of law, accounting, and strategy.
1. The First Step: Securing Know-How as a “Trade Secret”
Before even considering the financial valuation of know-how, it must be legally secured. Without protection, it loses all market value and becomes a public good. Since 2018, French law has protected know-how under trade secret status, provided that three strict criteria are met:
- It must be secret: The information must not be generally known or easily accessible.
- It must have commercial value: Its value derives precisely from its secrecy.
- It must be subject to reasonable protection measures: This is a critical point. The company must actively protect its secrets through contractual means, such as non-disclosure agreements, as well as physical or digital safeguards.
To be monetized, whether through transfer or licensing, the know-how must also be substantial, meaning it provides a real competitive advantage, and identified, meaning it is formalized in a medium so that it can be transferred. This creates a paradox: the formalization necessary for transfer increases the risk of disclosure. The key is therefore to strike the right balance to make it assessable without compromising its secrecy.
2. Accounting Recognition: A Challenging Path
Once protected, can know-how appear on the balance sheet? The answer depends on its origin, as specified by the international accounting standard IAS 38.
- Internally generated know-how: The standard is very strict. Research costs are always expensed. Only development expenditures may, under very rigorous conditions, be recognized as assets and capitalized. In practice, internally generated know-how rarely appears on the balance sheet.
- Acquired know-how, during an acquisition: The situation differs. In a business acquisition, IFRS 3 requires identifying and valuing all intangible assets of the target at fair value. Acquired and identifiable know-how can therefore be recognized on the acquirer’s balance sheet. If it is not separately identifiable, it is included in goodwill.
This distinction has a major consequence: the balance sheets of startups and innovative companies structurally undervalue their main asset—the know-how they have developed internally. Their true economic value is often revealed only during an acquisition transaction.
In the next article, the focus will shift to practical methods for estimating the financial value of this asset and using it as a strategic lever.
