Wednesday 20 June 2007

Goodwill and the Value of your business

I learnt a new word today as Barry Jefferd of UHY George Hay gave an entertaining talk at the Premier HBN Event, held this evening at the Huntingdon Race Course: Goodwill.

Barry was talking about valuing your business if you had the intention of selling. Whilst able to dispell the myth that accountants could not be amusing and excellent speakers, the general tenet of valuation still resided with the numerical elements of assets, turnover, profits and shares; value was in part dependent on the integrity of the accounting practices with which the business was run. We were getting into less tangible areas when considering how the business was managed. If it could run without you, value might increase, if it could not run in your absence, value would be likely to be diminished.

Whe all the financial and managerial factors have been considered and there are no hidden skeletons in the cupboard, that is where goodwill enters the balance sheet. Not just any goodwill, for goodwill is a real accounting term, it has to be purchased goodwill; it is the surplus over the fair value of the net assets which someone is prepared to pay for the business.

Goodwill is an intangible asset, a fickle thing, influenced by factors from business contacts, location to business potential. It can be high at one evaluation of the company and diminish to nothing if the reputation of a company becomes tarnished.

Ultimately the value of goodwill and the value are dependent on one final factor, the presence of a willing buyer.

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