For most of us, the idea of personal “goodwill” is clear. Within our own lives, “goodwill towards man” generally means doing good things for others, whether that’s volunteering, donating cash or items, or just being kind to those around us. However, in the business world, goodwill usually encompasses everything beyond tangible assets, from a business’s reputation, to the goods, services and products it provides.
Your Reputation Matters
Your business’s reputation is a key factor to your company’s success. When comparing two similar businesses, one with a stellar reputation for good service and community spirit, versus one with many negative reviews about service and support, it’s easy to identify which will be more successful. Make sure your staff knows how important your reputation is, not only for the growth of the company, but for future expansion and the eventual selling of the business too.
Going Beyond the Numbers
Goodwill is often a factor when a buyer pays more than the recognized value of a business. Variables that fall under the concept of “goodwill” include: quality and track record of management; strength of the local economy; the loyalty of the customer base; good relationships with suppliers; copyrights; trademarks and patents; name or brand recognition; specialized training and knowhow. Your broker or M&A advisor will highlight these aspects to potential buyers. Factors that impact the longevity of a business, and its long-term potential, should not be overlooked.
The Evolving Meaning of Goodwill
In recent years, the accounting profession has changed how it deals with the concept of goodwill and how it is factored into decisions. There has been a shift away from tangible assets and towards intangible assets.
Assets under the umbrella of intellectual property, including patents, trademarks, and brand names, are now considered key aspects of goodwill. In short, in the last twenty-years, goodwill has taken on a more complex and varied meaning. Today, businesses are not necessarily based around massive factories and huge assembly lines. Workers and management in the world’s largest companies 50 years ago would be hard pressed to explain the inner workings of some of today’s corporate campaigns.
In conclusion, the concept of goodwill is more confounding than ever. This factor serves to underscore the value, and importance of working with an experienced, capable and proven business broker or M & A advisor. Your business’s goodwill elements need to be highlighted so that prospective buyers fully understand the business’s real value.Read More