What is Goodwill?

When a business is being sold its Goodwill is something that has to be valued. This can sometimes be more challenging that initially anticipated. Goodwill is the cost of the intangible assets of the business such as its intellectual property, reputation and the customer base. These components are not separately identifiable. Consequently, there is the risk that the Buyer may pay too much or not enough for the Goodwill of the business.

In this modern age of technology, businesses use the internet more to advertise, promote and build up their customer bases. Thus, the calculating of Goodwill has become more complicated. As a result, the sale of a business will involve a calculation of the Goodwill by an accountant. Since the Seller and the Buyer will have conflicting interests (the Seller wants to sell the business for the highest value and the Buyer wants to purchase the business for the lowest value possible), deciding which party’s accountant to use can be contentious. Subsequently, sometimes it is wise to use an independent accountant. Nevertheless, it will be a solicitor’s job to review the components that constitute the Goodwill and ensure that they have been considered.

The following are likely to be constitute the Goodwill of a business:

  • The name of the business or brand.
  • Reputation of the business.
  • The customer base and information.
  • Employees
  • Intellectual Property.
  • Any bespoke technology (created for the running of the business).
  • Any trade secrets.

For more information regarding the sale or purchase of a business please contact our Commercial Team at Lawdit.

 

 

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