What does goodwill mean when buying or selling a business? Goodwill is the difference between a collection of intangible assets and the total purchase price of the business. For most business owners, goodwill is seen as good service, products and reputation.
Goodwill defined in the M&A Dictionary is as follows: “An intangible fixed asset that is carried as an asset on the balance sheet, such as a recognizable company or product name or strong reputation. When one company pays more than the net book value for another, the former is typically paying for goodwill.”
Listed below are some examples of “goodwill”. The list is surprisingly diverse.
- Name Recognition
- A Strong Reputation
- A Good Location
- Trade Secrets
- Proprietary Designs
- Skilled Employees
- Existing Contracts
- Specialized Know-How
- Technologically Advanced Equipment
- Customized Advertising Materials
- Specialized Tooling
- Supplier List
- Mailing List
- Custom-Built Factory
- A Loyal Customer Base
- Royalty Agreements
Goodwill is not easily defined in the business world. It can encompass a wide and diverse collection of factors. There are other important elements to consider when evaluating goodwill. For example, standards require companies to have intangible assets, which include goodwill, valued by an outside expert on an annual basis.
EBIT can help guide you through the buying and selling process. We can help you understand and present goodwill variables.