Goodwill: A business asset or no?
Undoubtedly, yes. Many business owners fail to realize that goodwill is essential to overall business success and growth.
What is it? Goodwill is trust that you build up with your audience, clients or customers. Many come back to re-purchase, collaborate or engage in some form of business with you because of long-term authenticity and quality of services.
Therefore, you can quantify the number of returned customers overtime which factors into your overall business assets as "goodwill."
Can goodwill be damaged? Yes. Here are two examples.
Example 1: A young entrepreneur purchases a product from Entrepreneur A and doesn't pick up the purchase for two months because of family death etc. Entrepreneur A never calls the young entrepreneur as a reminder or ship out with the billing expense going to the young entrepreneur.
When the young entrepreneur remembers, she phones up Entrepreneur A to schedule time for pickup and Entrepreneur A states that the product may have been put back on the floor for re-sale because of a new policy that went into effect after young entrepreneur made her purchase.
Young entrepreneur asks for a refund if the product has been resold because young entrepreneur was never given notice of a new policy or contacted to pick up product.
Example 2: Young entrepreneur hires a virtual assistance firm to take care of all the phone lines and other administrative tasks. For months, the parties agreed that young entrepreneur will pay a fee per phone call and an hourly rate for the administrative tasks monthly. After three months, the Virtual Assistance firm bills the young entrepreneur the agreed up rates plus another $40.00 flat fee that was never agreed to nor listed in the original contract.
In both examples, the young entrepreneur had business relationships with the business owners, yet the trust - goodwill - was broken and young entrepreneur no longer does business with them.
When you value the business, you should always include the goodwill (returning customers/customer lists) as this creates a business asset. But, it's essential to ensure that the goodwill of the business is properly maintained just as you would another revenue generating activity.
This article is a service of SL DeBarros Law Firm, LLC. We offer a wide array of business legal services and can help you make the wisest business choices throughout life and in the event of your death. We also offer a Business Protection Start-Up Session or a Business Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule.