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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 ValueAlthough 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?
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.
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