Health & Fitness
Goodwill Adds Important Value to Your Business
The value of your business is often significantly higher than the value of your company's equipment, real estate and other physical assets.
The value of a business is often significantly higher than the value of the company’s equipment, real estate and other physical assets.
In other words, if you pay $5 million to buy a business that has $2 million in physical assets, $3 million of your purchase price is goodwill.
Goodwill includes such things as customer lists, reputation, trade secrets, trademarks, copyrights, patents, name recognition, corporate image, domain names, licenses, location, skilled workforce, the company’s position within the industry, and whether the company has a competitive edge in such things as technology or delivery systems, manufacturing or something else.
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In other words, goodwill is the value that the business owners create in a business through their hard work, skill, and strategic decisions.
When you build a privately held company, there is no way of knowing what the value of the goodwill is until your company is purchased by someone else. Upon sale, the level of goodwill is readily apparent because it is the sales price less the value of the physical assets. Finally, a number is put on the value of all the efforts you made in building your business.
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It is logical that companies with a strong brand, loyal customers, and proprietary products command a higher price than the price that would be indicated just by the value of the physical assets. That’s because a well-developed, well-positioned existing company saddles the buyer with a lot lower risk than would be the case with a brand new company.
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Disclaimer: This Blog is for informational purposes only and is not to be construed as legal advice. If you have questions, please seek the advice of an attorney. An attorney-client relationship is not formed by reading this Blog. If you are interested in Wittenburg Law’s representation of you, you must contact Wittenburg Law for a determination of whether your matter is one for which Wittenburg Law is willing and able to accept representation of you.
Bonnie Wittenburg, Wittenburg Law Office, PLLC, Minnetonka, MN 952-649-9771 www.bwittenburglaw.com bonnie@bwittenburglaw.com
