Buying a Business? How to Establish the Value of Goodwill

Goodwill is the value of a business to a purchaser over and above the net assets of the business in question. Ultimately, goodwill is a reflection of the intangible portions of the business, such as reputation, brand name, customer relations and employee morale as well as other factors that improve the company name.

When a business is purchased, goodwill will rarely be mentioned, but its value will be factored into the overall purchase price. Unlike the net assets of a particular business in which the value can be easily appraised, goodwill is more subjective. The value of goodwill is negotiable, and it is up to the buyer to decide what the goodwill of a particular business is worth. This is done by determining the additional value the goodwill brings to the business.

In order to place a value on the reputation of an operating business, the purchaser must consider how well the current clientele fits into the purchaser’s visions for the business. In a turnkey operation, reputation, customer relations and employee morale will weigh heavier on the goodwill scale. Conversely, in a situation where the new owner intends to make several changes in order to improve the business, the goodwill may not weigh so heavily.

Ask questions that will assist in defining the value of the goodwill. Will the business realize additional profits due to business name? Would a similar business without an established clientele be as profitable? Does the value assigned by the seller to the goodwill aspect of the sale meet your purchase requirements? These variables allow the investor to establish whether or not the goodwill value is supported.

 

What to Look For When Hiring an Accountant

As business owners, we share one common goal – growing our business. Although you may be an expert in your field and you have an all-star sales team, your full time CFO is crunching numbers in the back without letting you know what exactly your current financial status is. Even though you are winning bids right and left, are you sure that you will be able to afford to do the labor? If this makes you think twice on who you’ve hired as an accountant, here are some guidelines for choosing your next one.

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Should You Become the Face of the Company?

In today’s world, people often base purchasing choices, employment decisions and investment picks on their opinion of an organization’s top leader. Think of Martha Stewart, Steve Jobs or Meg Whitman.

A company’s reputation is closely linked to that of its chief executive officer (CEO), and the credibility of the top banana greatly influences whether people are willing to trust an organization, support it through a crisis or pay a premium for its products and services.

Regardless of a company’s size or complexity, the person in charge sets the style and tone, embodies the brand, and becomes its public face. Employees, customers and the media all watch the CEO for insights into the corporation’s culture, integrity and brand value.

Leadership branding means that the leader has a recognizable public persona.

Branding a person involves positioning the person through actions, statements and values and may involve:

  • Media strategies that present the executive as a credible spokesperson, able to provide insight and commentary to reporters who cover his or her industry or influence his or her markets
  • Public speaking that reaches targeted audiences through keynotes, panels, town hall meetings, trade shows or executive conferences
  • Cause marketing that builds brand loyalty and demonstrates corporate citizenship.
  • Thought leadership whereby the CEO influences the industry or community with visionary ideas or strongly held positions
  • Published articles, reports, op-eds and books in either printed or online media

A leader’s reputation is an essential component of a company’s overall branding strategy.

The CEO’s reputation needs to be crafted, honed and sustained over the long term.