Value of goodwill | New England Business Bulletin
July 23, 2010 6:43 PM
Goodwill is an important piece of every business valuation. It is probably the most misunderstood term when used amongst business owners and the general public.
It is unfortunately confused with and referred to in some corners as "blue sky" or "air ball", but these are old terms used primarily in the auto industry, etc. to explain amounts above and beyond perceived value. The allusion is that Goodwill cannot be measured and is just a number pulled out of the sky or a "dreamed up" number with no basis to it.
The fact of the matter is that Goodwill is definable and usually calculated and included in the fair market value of a business.
The intangible value in the nature of goodwill is the value of the company's economic income over and above a reasonable rate of return on the company's net tangible assets. Goodwill is an intangible asset and includes the company trade name, vendor and customer lists and relationships, an established reputation in the community and industry, experienced work force, and a company infrastructure, to name a few.
Goodwill certainly adds economic benefit to a company.
So if you are selling your company and it has been profitable, you will certainly receive Goodwill value. If you are purchasing a profitable company, expect to pay for Goodwill as it is a component of the company's overall value.
Kevin A. Nery, CBB, CBI, M&AMI is a certified business broker, certified business intermediary, merger and acquisitions master intermediary and a consultant with over 30 years of business experience. He is president of The Nery Corporation and Coastal Business Brokers, www.coastalbizbrokers.com. Currently treasurer of the New England Business Brokers Association board of directors, he may be contacted at The Nery Corporation, 700 Pleasant St., Suite 330, New Bedford, MA 02740; (508) 990-9800; or nery.corp@verizon.net
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