Within many areas of business, including business sales or purchases, the term “goodwill” has taken on greater and greater meaning over the years. This term, which may be a bit confusing for some, is actually relatively simple, covering not only a business’s reputation but also its goods and services and the value these have to the marketplace long-term.
At Utah Business Consultants, we’re proud to offer a variety of services to clients looking to buy or sell a business, including assessing your reputation and other goodwill areas and how these may factor into the equation. What exactly is goodwill, what are the types of goodwill often found in business, and how do these factors connect to a potential business sale or purchase? Here are some
Goodwill and Reputation
As we noted above, reputation is a significant part of any business’s goodwill. This isn’t necessarily a quantifiable area – you can’t exactly track goodwill on a numerical basis or in a spreadsheet, which makes it one of the most unique areas of any business.
A good reputation is a major asset, but one that’s hard to place precise value on. It may vary depending on your industry and the reputation of other companies within it. But in general, if a client has a choice between two businesses that are similar in most ways, they will gravitate toward the one that has the best reputation.
Types of Goodwill
There are a few different types of goodwill within a business situation:
- Business goodwill: At the company level, business goodwill refers to reputation, name value and similar areas. There’s no question being a strong, growing business financially will play a major role in obtaining business goodwill, but so will other factors like your location, the assets you own (such as a building or facility), and various other areas like royalties, franchise contracts, licenses and more. Business goodwill often plays a major role in the valuation of a business for a sale.
- Personal goodwill: On a more individual basis, personal goodwill refers to areas like client and vendor relationships, customer service and related areas. For many businesses, the owner or CEO sets the tone for personal goodwill.
- Intellectual goodwill: This is a vital area that covers various ideas, methods or proprietary concepts that are unique to only your business. Your customer base is something that no other business replicates directly, for instance – this, along with areas like databases, training manuals and other practices are all part of intellectual goodwill. In addition, if your company makes or sells any proprietary technology or services, these also fall under intellectual goodwill.