What does goodwill mean ?

In a business context, goodwill could be defined as the amount that a buyer would be prepared to pay for your business over and above the valuation of the business net assets.

Very often, it is the relationships that you have built with your customer base that is the most valuable asset. Buyers will be keen to acquire these relationships and will place greater reliance on this “asset” than any equipment or other on-balance sheet item you may be selling.

How is goodwill valued

There is no fixed formula for valuing goodwill. Its value is finalised by negotiation between buyers and sellers.

There are formulaic methods for including goodwill based on the ability of the buyer to recover their investment, from the business purchased, over a fixed term, say three to five years. Unsurprisingly, buyers of higher risk businesses will want a faster pay-back.

Annual valuations

Although your valuation of your business may be higher or lower than the amount a buyer is prepared to pay there is value on using a consistent process to produce an annual valuation. In this way you can monitor the growth of your business and work at developing those characteristics that will secure a higher price when you come to sell, for example, building an independent management team.

Latest Blog
12
Apr

Boost for small businesses

In a recent press release, HMRC underlined the benefits to smaller businesses from th...

Read More
09
Apr

A new acronym

Most readers of our posts will recognise the acronym CGT or IHT -Capital Gains Tax or...

Read More
05
Apr

Tax Diary April/May 2024

1 April 2024 – Due date for corporation tax due for the year ended 30 June 2023...

Read More
05
Apr

Still time to register for the Marriage Allowance

There is still time to register for the marriage allowance before the current tax yea...

Read More