What is "goodwill" when buying a business?
Goodwill is the intangible value of a business such as its branding, clientele, customer loyalty, patents, technology and other value that makes the business. It is what makes the purchase price of a business higher than just the fair market value of all its assets less liabilities.
How do you calculate goodwill?
If a business has an asking price of $200,000, has assets of $100,000 and liabilities of $50,000.
Use this formula to work out the value of goodwill in a business:
Goodwill = Price - (Assets + Liabilities)
Goodwill = $200,000 – ($100,000 + $50,000)
In this case, the goodwill is valued at $50,000.