What Is Goodwill When Buying Or Selling A Business?

What is goodwill when buying or selling a business

Table of Contents

What is goodwill?

Goodwill is the intangible value of a business such as its reputation, branding, customer loyalty, 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.

Although goodwill is listed as an intangible asset on a balance sheet, it cannot be bought or sold separately from the business. Without the business, this goodwill does not exist.

What affects the value of the business’ goodwill?

Although, not an exhaustive list, here are some things that can affect the value of the goodwill of a business:

  • Customer relations
  • Customer loyalty
  • Staff satisfaction
  • Branding
  • Reputation
  • Location

Intangible assets which can be sold and purchased separately such as patents, licenses, and trademarks are not considered goodwill.

Why is goodwill important when buying or selling a business?

It’s important to understand goodwill as it often comes into play when buying or selling a business. The value of the business’ goodwill is generally included in the sale price.

How to calculate the goodwill of a business?

If a business has an asking price of $200,000, 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

Try our easy-to-use goodwill calculator.


The contents of this article do not constitute advice, are not intended to be a substitute for advice, and should not be relied upon for any such purposes. You should seek advice or other professional advice in relation to any particular matters you or your organisation may have.

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