How A Business’s Goodwill Establishes Price and A Solid FootingFebruary 2013 Hughes News
Whether you’re a business owner about to sell your business or a buyer looking to buy a going business; there seems to be some confusion when it comes to “GOODWILL.”
This is a key ingredient in the formula of a businesses’ value. Therefore, for a seller, it affects how much a business can be sold for. From a buyer’s perspective, goodwill indicates the likelihood of ongoing business operations and income from day 1.
Goodwill often defines the price of a business. Here’s the formula in a nutshell;
Asking Price LESS Market Value of FF&E’s (furniture, fixtures & equipment) = Goodwill Value.
FF&E’s may include:
1. Market awareness of the business or its reputation in the community.
2. Phone number
3. Logo, web site and social media standings or rankings
4. Business name recognition
6. Proprietary technology, patents or formulas
7. Customer lists
8. Vendor resources
9. Lease term and rate
10. Number of years in business
11. Advertising history
12. Trained employees and length of employment
These factors paint a picture of the advantages of buying an on-going business, versus starting from scratch and facing what can be years of ups and downs until you establish yourself. The length of that learning curve and establishing period often surprises new business owners. Goodwill is at the core of a business’s value and often what makes it worth buying.
Happy goodwill hunting.
Robert Hughes is a commercial broker and president of Hughes Properties, Inc. in Palm Springs. An MBA from USC, Hughes has a wide variety of entrepreneurial experience with the personal ownership and sale of over sixteen businesses, including founder and publisher of Orange Coast Magazine. Additional business tips can be found at www.hughesproperties.com.