SoftCapital

SoftCapital - Soft Capital: An Inquiry into the Obscure...

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Soft Capital: An Inquiry into the Obscure Organizational Assets By Robert Desman 1000 Chastain Road • Kennesaw, Georgia • 30144-5591 Telephone: 770/425-5361 • FAX: 770/795-9705 • e-mail: id8@randomc.com
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2 Introduction Capital represents wealth or the means for producing wealth. Traditional economics explains that it comes in three forms: physical, financial, and human. Metaphorically, the business enterprise, large or small, is a “machine” that consumes capital to generate more capital. Consequently, one would expect that a large proportion of the problems and decisions confronting business operators would be related to the acquisition, allocation, and disposition of capital. confirm that the primary concerns for SMEs seeking business advice are capital-related. Seventy-three percent of those in the NFIB study solicited help on “accounting, bookkeeping, and tax” issues, 46% on “loans, financial analysis, or cash management,” and 45% on “prospective purchases or business investments.” Issues for which they were least likely to solicit advice were government regulations, human resource and personnel issues, and business layout and design. Chrisman and McMullan (2000) distinguish “counseling” from “consulting” by the former being more programmatic and focusing on direction, mentoring, and feedback, whereas the latter is more task-specific and project-oriented. In the NFIB study, the vast majority of solicited advice appeared to be in the form of counsel with the primary source being a family member. When the business operators sought consulting, 58.7% used accountants, 39.1% attorneys, 30.3% insurance agents and brokers, 28.2% talked to a banker, and 12.8% to a business consultant. Larger enterprises (20-249 employees) were more likely to pay for and use professional advice than were smaller firms (1-20 employees), suggesting that consultation was perceived as more valuable as enterprise complexity and, thus, the economic consequence of error increased. The focus of small business operators on their physical and financial, hard capital , wellbeing is not surprising. Tangible assets are the threads from which financial statements are woven and everyone from the tax collector to the potential lender or investor wants to see the financials. Physical assets produce the product or service; financial assets pay the bills and fuel growth. Human capital and the intangibles, soft capital , do not seem to receive the
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3 same concern. This too is predictable. Hard capital is generally viewed an asset, human capital as an expense, and intangibles as an accounting machination. Nevertheless, economists do argue that human capital is one of the three enterprise-
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SoftCapital - Soft Capital: An Inquiry into the Obscure...

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