Definition
Know-how refers to the practical knowledge, skills, and expertise necessary to perform specific tasks or processes, especially those related to manufacturing or processing goods and materials. It encompasses industry-specific insights, proprietary techniques, and specialized information that are instrumental in the production and processing of various goods.
Examples of Know-how
- Manufacturing Techniques: Specialized processes including innovative methods in assembly lines, production management, and the application of new materials or advanced technologies.
- Processing Techniques: Expertise in chemical engineering processes needed for refining raw materials into usable products, like the conversion of crude oil into gasoline.
- Proprietary Software: Custom-designed software that’s used for particular operational functions within a company, such as inventory management or quality control.
- Trade Secrets: Confidential business information providing a competitive edge, like a secret recipe or unique welding technique.
Frequently Asked Questions
What qualifies as know-how in a business context?
Know-how includes skills, expertise, and techniques developed through experience and training, particularly those not easily transferable or widely known.
Can the acquisition of know-how be considered a capital expenditure?
Yes, acquiring know-how can be a capital expenditure and might qualify for allowances against corporation tax, depending on jurisdiction-specific tax rules.
How is know-how different from a patent?
A patent is legally-protected intellectual property that provides exclusive rights to an invention for a specified time, whereas know-how is about practical knowledge and expertise that may or may not be legally protected but provides a competitive advantage.
Is know-how a tangible or intangible asset?
Know-how is considered an intangible asset as it constitutes non-physical knowledge or expertise that holds value for a business.
How can a company protect its know-how?
Companies can protect their know-how through confidentiality agreements, trade secrets, and secure internal processes to prevent unauthorized disclosure.
Related Terms
- Capital Expenditure: Funds used by a company to acquire, upgrade, and maintain physical assets such as property, industrial buildings, or equipment.
- Corporation Tax: A tax imposed on the income or capital of corporations, usually at a national level.
- Intellectual Property (IP): Creations of the mind for which exclusive rights are recognized, often grouped into patents, trademarks, copyrights, and trade secrets.
- Trade Secrets: A type of intellectual property consisting of a formula, practice, process, design, instrument, pattern, or compilation of information which is not generally known or reasonably ascertainable.
Online Resources
- Investopedia: Know-how
- International Chamber of Commerce: Protecting Know-how
- IRS: Depreciation of Intangible Assets
Suggested Books
- “Intellectual Capital: The New Wealth of Organizations” by Thomas A. Stewart
- “Valuation of Intellectual Property and Intangible Assets” by Gordon V. Smith and Russell L. Parr
- “Patent, Copyright & Trademark: An Intellectual Property Desk Reference” by Richard Stim
Accounting Basics: Know-how Fundamentals Quiz
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