Tuesday, May 17, 2011

When you sell your business, how will you measure Goodwill?

It's hard being a business owner. You work incredible hours, put your heart and soul into each customer, your business' reputation, your staff, everything - and you never switch off (not even sleeping).

But there's an end in sight - one day you hope to sell your business, reap the rewards, and lie on a deck chair somewhere drinking margaritas by the pool.

Hopefully your plan comes true but depending on what type of business you're in, it can be tricky to sell-out at a price that rewards you for all the work you've put in.

The biggest place where value is contested is the "Goodwill" line item. Technically, "goodwill" is the value of an entity over and above the value of its assets**. If you're lucky enough to have several buyers creating demand and bidding for your business, then this might not be an issue. But most of the time, the price paid for the business is highly influenced by the way the business is presented to potential buyers.

Of course, you know that your business has built a name for itself, that customers travel from all over town just to deal with you, that your staff are highly trained in customer service, and that you deliver a much better result than your competitors... but proving it can be another matter.

Would your business command a higher price with 5 glowing customer reviews?

What about 50 glowing customer reviews?

Would a shiny business award attract the attention of more buyers?

Would a celebrity customer or two tip a buyer over the line?

Or some encouraging press about your business or industry?

A resoundingly positive reputation is likely to pay huge dividends when the time comes to value the Goodwill in your business.

Just some food for thought if you're thinking of selling up in the next few years...

*This post was inspired by a business recently spotted using their customer reviews on WOMOW and their Best Business Award as a key part of the marketing for selling their business.

**We're not accountants or financial advisors so please get your own advice.