What does the term “goodwill” mean with regards to buying or selling a business? Usually, the term is a reference to all the non-tangible work that a seller puts into their business over the years that he or she operates it. Goodwill is the difference between an array of intangible important assets and the total purchase price of the business. Do not underestimate the value of goodwill as it relates to both the long-term and short-term success of any given business.
In the mergers and acquisitions market, an intangible asset is an asset that carries on the balance sheet. It may include a company’s reputation or a recognized name in the market. If a company sells for more than its book value, then the chances are great that goodwill has played a role.
Goodwill should not be confused with “going concern value.” Going concern value is the fact that a business will continue to operate in a fashion consistent with its original intended purpose. It’s not going to fail or close down.
Examples of Goodwill
Examples of goodwill can be quite varied. The following list contains some of the more common and interesting examples of non-tangible assets that are considered “goodwill:”
- Name recognition
- A strong reputation
- Proprietary designs
- A good location
- Trade secrets
- Specialized know-how
- Existing contracts
- Skilled employees
- Customized advertising materials
- Technologically advanced equipment
- Custom-built factory
- Specialized tooling
- A loyal customer base
- Mailing list
- Supplier list
- Royalty agreements
Goodwill in the business arena isn’t easy to define. Simply put, goodwill can, and usually does, encompass a wide and diverse array of factors. Many important elements need to be considered when evaluating and considering goodwill. For example, standards require that companies with intangible assets, including goodwill, be valued by an outside expert on an annual basis. Essentially, a business owner simply can’t claim anything under the sun as an intangible asset.
If you are buying or selling a business, leverage the know-how of seasoned experts. An experienced business broker will be able to help guide you through the buying and selling process. Understanding what is a real and valuable intangible asset or example of goodwill can be a key factor in the buying and selling process.