According to the International Glossary of Business Valuation Terms, goodwill is defined as: “That intangible asset arising as a result of name, reputation, customer loyalty, location, products, and similar factors not separately identified.” The remainder of value after subtracting identifiable tangible and intangible assets is goodwill. So when a business is valued under either the market approach or the income approach, it is only necessary to compare the overall business value to the value of the identifiable assets and liabilities in order to find the value of the goodwill.
New Focus on Goodwill
As the business valuation discipline has grown and changed over the years, more attention has been focused on identifying and valuing goodwill. Goodwill also takes center stage in divorce cases in some states. About half of the states expect business owners to not only identify and value goodwill, but they also specifically exclude personal goodwill from the marital estate under certain circumstances. Sometimes, personal goodwill is further broken down into pure and transferable goodwill.
Attorneys and valuators should discuss the issue of goodwill before appraising any business for divorce purposes.
Leave Goodwill to the Experts
Goodwill has grown into a major player in the valuation paradigm, especially when appraising professional practices. Its importance has evolved value into a concept that must be considered more closely in valuation.
Filler & Associates is a credentialed valuator who is aware of the nuances and emerging best practices regarding this valuable asset, and its underlying components.