Goodwill- what is it? Why do I need to know its value?

Are you a business owner who wants to know what the concept of goodwill is and how to apply it to your business? Read on…

I will be starting a mini-series based on this important topic; my hope is that you will be able to learn something about the concept that you might be able to use to positively impact the value of your business.

The goodwill represented by a competent professional almost always increases the value of his business.

So- what exactly is goodwill?

For a garden-variety definition, goodwill can be thought of as the value of your business that is not reflected on your company’s balance sheet.

In other words, all of the intangible factors that make your business valuable are referred to as goodwill.

These might include:

  • An AWESOME location. Clients might visit you because you are convenient, on the way home, a short walk from the office, or down the street from your kid’s school.
  • Your personal competence. If you are a lawyer, attorney, brain surgeon, or physical therapist, people might come to you based on your body of work, your experience, and the trust that others have in you.
  • Your staff. A well-trained, professional staff, knowledgeable and skilled, and competent, will have clients coming back to your place of business.
  • Your longevity. If people get the sense that your business is a permanent fixture and is not going anywhere, they might be more amenable to giving you their patronage.

These are a few examples of what might comprise goodwill. Know that even though goodwill is intangible, it is a tremendously important component of the value of a business. Know also that there are several issues related to goodwill that become extremely relevant when a business valuation is being performed.

I will develop this theme in the coming weeks; in the meantime, think about this: you can actually improve/enhance the value of your business simply by doing what you can to nurture all of the factors related to goodwill, and thereby maximize their impact on your business.

Challenge yourself to take a hard look at your business, identify the intangible assets, and improve any areas that need to be improved; your business value will be better for it.

Next post: Personal vs. Professional Goodwill.


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