Does Goodwill Still Exist in a Business Sale?
When it comes to selling a business, people often ask whether there is any value in a businesses goodwill and how much could it be?
Goodwill is the reputation, loyalty and brand name of a business. Goodwill cannot exist independently of the business, you cannot sell goodwill on its own, you cannot buy or acquire it without some part of a business. It is an intangible asset of the business.
Goodwill + Profit
The goodwill of a business is usually a driving force for sales and success of the business. If your business has a high level of goodwill, it should be evident in the sales and profitability of the business. Repeat customers, interactive social media accounts, positive testimonials and online reviews of the business are all signs of a businesses goodwill. These aspects should also show in the profitability of the business, so in the valuation, your profit in part, is your companies goodwill.
Goodwill + Future Potential
The other aspect is future growth and potential for the business. Will this goodwill lead the business to higher sales and increased customers in the future. How much would it cost to recreate the level of goodwill the company currently has. This needs to be evaluated and included in the selling price of the business.
Calculating a businesses goodwill can be complex. There are a few methods such as the International Financial Reporting Standards method. Though, it is always important to seek advice from an accountant or business broker to help establish the valuation of your business and its goodwill component.
So yes, goodwill does still exits in a business sale and is an important part of the valuation.