One of the more crucial assets that affect the overall worth of a brand, business or company is a little something the valuation industry likes to call goodwill. Goodwill refers to a chunk of a brand or a company’s value that cannot be put under cash or physical goods. Is it an intangible asset? You could say that.
How do you determine business goodwill?
Since goodwill is generally considered an intangible asset, one will have to look into all the assets a company has and analyze if these assets can be categorized as goodwill. These assets include, but not limited to:
- Brand-name recognition
- Reputation among customers
- Secrets of the trade
- Clients
- Copyrights, trademarks, and patents
- Licenses and other permits
Now, how does one account business goodwill?
To put it in the books of the business, goodwill is computed by subtracting the fair market value of tangible assets from the business’ total worth.
Generally, the cost approach is used in valuing business goodwill. Through this, businesses estimate the cost of recreating the current goodwill value, but from zero. Other than this, they can also compare the sales of similar businesses in the industry to be able to calculate the percentage of goodwill in the sale price of the business.
Why is goodwill important?
While it is considered an intangible asset, business goodwill is one factor that immensely affects a company’s value. The standing of a business on the industry its categorized in has a huge effect on the success of said business, financially. Don’t underestimate the power of this factor. An accurate assessment of goodwill can get your company bought for the right price.
Need some help assessing your goodwill? Don’t fret! Aviso Valuation and Advisory can always provide assistance in all your business valuation needs. Just give us a call and let’s talk about how we can help you and your business reach greater heights.
