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Q.How do I value the “Goodwill” of my business?
A.Bottom line is that your company is worth only what someone will pay for it. Generally, a potential buyer's offer will be influenced by: (a) how soon he or she expects to see a return on the initial investment (5 to 6 years is typical); (b) the age of your business, (c) how easy or difficult the business is to operate, and (d) the economic market, both locally and nationally.
Business goodwill is the single most difficult portion of a business to value. Your reputation and business relations with customers, vendors and the community all contribute to the goodwill of the business and the likelihood a buyer will receive a quick return on his or her investment. Sales of some businesses are based on business goodwill alone.
Accurate addresses, buying patterns, payment history and customer lists all are important information that should be available to potential buyers, but guarded by a strict confidentialty agreement or nondisclosure agreement (NDA). This information must be guarded, so initially offer only to provide a prospective buyer with select references to substantiate your credibility.
Getting professional help from a business broker in setting a price and from an attorney in negotiating the sale of a business can really pay off in the long run.
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