The value of a business is not solely based on the accumulation of its tangible assets that can include equipment, machinery or buildings (a physical property with value). Many times, more than 50% of the value of a business is attributed to intangible assets and goodwill (not physical by nature). A business is valued by its ability to produce cash flow steadily. The goodwill value reduces the risk that a business’ profitability will stumble if the ownership changes hands.
Some important contributors to goodwill are:
Reputation Brand name recognition
Websites & domain names Trade Secrets & recipes
Customer & supplier lists Copyrights, trademarks & patents
Licenses & permits Contracts
Production/Order Backlog Accreditations
Developed processes Proprietary designs & know-how
Customized software Step-by-step training systems
Customized databases Publishes articles
Employee skills & experience
All of these powerful assets of goodwill add to the revenue producing ability of a business. Sometimes buyers don’t understand the value of goodwill because it is not an asset that they can always put their hands on. It is important to define the goodwill of a business when determining its value.
For more detailed information on Goodwill, please read the following article: