How to Assess Goodwill When Buying or Selling a Business

How to Assess Goodwill When Buying or Selling a Business

Goodwill, much like it sounds, is a company’s positive reputation. More specifically, business goodwill is an accounting term that describes intangible assets. In essence, a company’s brand name, loyal customer base, good public reputation, and patents, for example. An intangible asset cannot be quantified like sales or property but is just as important in determining a business's value before a sale.

Overpaying versus Greater Value

Although intangible, goodwill can be calculated. As it serves as an important measure to determine an accurate selling price, it is also a useful tool to prevent overpaying during a business sale. The best and easiest way to calculate this value is by subtracting the fair market value of a business’s tangible assets from the total business value. That being said, “overpaying” depends on whom you ask. Someone with experience both buying and selling a business can argue for the unmistakable value of goodwill.

Goodwill may be listed on a balance sheet, if the business owner purchased the business and a value was allocated to goodwill. . It is possible to purchase a business at a higher price than the value of its assets. In many cases, goodwill makes a business more sought after as it can translate to greater sales as customer loyalty cannot be quantified but can determine if a business will be successful even after ownership has transferred.

What assets are considered goodwill?

  • Brand name and recognition
  • Solid customer base and supplier lists
  • Good customer relationships
  •  Website and domain name
  • Copyrights, trademarks, and patents
  • Licenses and permits
  •  Good employee relations
  • Expectation of future economic benefits
  • Managerial and executive talent and innovation
  • Processes and training systems
  • Reputation, etc.

 Transworld Business Advisors

Transworld’s team of advisors has extensive experience both helping individuals with buying and selling businesses across many industries. With perspective on both sides of the deal, Transworld brokers have the intuition and skill to guide buyers and sellers through their unique processes. Our brokers understand the importance of intangible assets and the value of goodwill. Our brokers have the ability to calculate it should you need assistance.

At the same time, if you can do that but are unsure of how to market your goodwill during listing, Transworld brokers can help with that too! Our brokers will play a vital role in getting your business sold - or helping you buy the right one!

Contact your local Transworld Business Advisors today to schedule your first consultation! Do not let the concept of something intangible keep you from making that sale or purchase. With our help, you can be one step closer to that dream.