A business's true worth is often far more than the value of its individual parts. When buying or selling a business, goodwill represents the value of the business that is above and beyond the worth of separately identifiable tangible business assets. Unlike physical assets, like buildings or equipment, goodwill is an intangible asset.
What Are the Factors that Contribute to the Creation of Business's Goodwill?Business goodwill reflects the synergy among the various assets in a well-run business that are used to generate revenue. Although it can be difficult to price, determining the value of goodwill can make a company more valuable. However, since the components that make up goodwill have subjective values, there is also a risk that a business could over or undervalue goodwill during a business valuation. Business owners may believe that the business has additional value because they see it as being able to create new products and services, attract new customers, and acquire or merge with other businesses. You may find that they have undervalued the business creating a buying opportunity.
What Intangible Assets Compose Goodwill?Just as the whole is greater than the sum of the parts, goodwill is a crucial asset when determining a company's overall valuation. When calculating goodwill for your company, it's important to take into account the various factors that affect a company's goodwill. Some of the assets that can be categorized as goodwill include:
- Company's brand name and recognition
- Solid customer base and supplier lists
- Good customer relationships
- Company 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 among customers and vendors
- Proprietary technology
- Trade secrets