sales@deal-studio.com
(800) 239-5085
Schedule a Demo
  • Home
  • Platform
    • Industry Websites
    • Professional Content
    • Lead Capture Tools
    • Sales CRM
    • Deal Management
    • Integrated Workflows
  • Marketing
    • Branding & Design
    • Digital Marketing
    • CBR Design
    • Social Media Graphics
    • Company Newsletters
    • Email Campaigns
  • Insights
  • About
    • Who We Are
    • Our Story
    • Our Team
    • Testimonials
    • Schedule a Call
  • Contact Us
  • Home
  • Platform
    • Industry Websites
    • Professional Content
    • Lead Capture Tools
    • Sales CRM
    • Deal Management
    • Integrated Workflows
  • Marketing
    • Branding & Design
    • Digital Marketing
    • CBR Design
    • Social Media Graphics
    • Company Newsletters
    • Email Campaigns
  • Insights
  • About
    • Who We Are
    • Our Story
    • Our Team
    • Testimonials
    • Schedule a Call
  • Contact Us
  • Home
  • Platform
    • Industry Websites
    • Professional Content
    • Lead Capture Tools
    • Sales CRM
    • Deal Management
    • Integrated Workflows
  • Marketing
    • Branding & Design
    • Digital Marketing
    • CBR Design
    • Social Media Graphics
    • Company Newsletters
    • Email Campaigns
  • Insights
  • About
    • Who We Are
    • Our Story
    • Our Team
    • Testimonials
    • Schedule a Call
  • Contact Us
  • Home
  • Platform
    • Industry Websites
    • Professional Content
    • Lead Capture Tools
    • Sales CRM
    • Deal Management
    • Integrated Workflows
  • Marketing
    • Branding & Design
    • Digital Marketing
    • CBR Design
    • Social Media Graphics
    • Company Newsletters
    • Email Campaigns
  • Insights
  • About
    • Who We Are
    • Our Story
    • Our Team
    • Testimonials
    • Schedule a Call
  • Contact Us
Blog
Home Buyer Articles Personal Goodwill: Who Owns It?
Buyer ArticlesSeller Articles

Personal Goodwill: Who Owns It?

Deal Studio May 2, 2016 0 Comments

Personal Goodwill has always been a fascinating subject, impacting the sale of many small to medium-sized businesses – and possibly even larger companies. How is personal goodwill developed? An individual starts a business and, during the process, builds one or more of the following:

• A positive personal reputation
• A personal relationship with many of the largest customers and/or suppliers
• Company products, publications, etc., as the sole author, designer, or inventor

The creation of personal goodwill occurs far beyond just customers and suppliers. Over the years, personal goodwill has been established through relationships with tax advisors, doctors, dentists, attorneys, and other personal service providers.  While these relationships are wonderful benefits, they are, unfortunately, non-transferable. There is an old saying:  In businesses built around personal goodwill, the goodwill goes home at night.

It can be difficult to sell a business, regardless of size, where personal goodwill plays an integral role in the business’ success. The larger the business, the less likely that one person holds the key to its profitability. In small to medium-sized businesses, personal goodwill can be a crucial ingredient.  A buyer certainly has to consider it when considering whether to buy such a business.

In the case of the sale of a medical, accounting, or legal practice, existing clients/patients may visit a new owner of the same practice; they are used to coming to that location, they have an immediate problem, or they have some other practical reason for staying with the same practice. However, if existing clients or patients don’t like the new owner, or they don’t feel that their needs were handled the way the old owner cared for them, they may look for a new provider. The new owner might be as competent as, or more competent than, his predecessor, but chemistry, or the lack of it, can supersede competency in the eyes of a customer.

Businesses centered on the goodwill of the owner can certainly be sold, but usually the buyer will want some protection in case business is lost with the departure of the seller. One simple method requires the seller to stay for a sufficient period after the sale to allow him or her to work with the new owner and slowly transfer the goodwill. No doubt, some goodwill will be lost, but that expectation should be built into the price.

Another approach uses some form of “earnout.” At the end of the year, the lost business that can be attributed to the goodwill of the seller is tallied.  A percentage is then subtracted from monies owed to the seller, or funds from the down payment are placed in escrow, and adjustments are made from that source.

In some cases, the sale of goodwill may offer some favorable tax benefits for the seller. If the seller of the business is also the owner of the personal goodwill, the sale can essentially be two taxable events. The tax courts have ruled that the business doesn’t own the goodwill, the owner of the business does. The seller thus sells the business and then also sells his or her personal goodwill. The seller’s tax professional will be able to give further advice on this matter.

 

WavebreakMediaLtd./BigStock.com

Copyright:Business Brokerage Press, Inc.

 

50
3644 Views
The Three Ways to NegotiatePrevThe Three Ways to NegotiateApril 20, 2016
Why Deals Fall Apart -- Loss of MomentumMay 24, 2016Why Deals Fall Apart -- Loss of MomentumNext

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Recent Posts
  • Expectations for Business in 2023 February 1, 2023
  • 5 Ways that Sellers Can Focus on the Positives January 19, 2023
  • The Top 3 Reasons Why Deals Fall Through January 11, 2023
  • The Four Essential Stages of a Closing January 4, 2023
  • Take Inventory of Your Company December 14, 2022
Categories
  • Blog 22
  • Buyer Articles 100
  • Buyer FAQ 15
  • Buying a Business 34
  • Content 1
  • Financing the Deal 7
  • General Business Brokerage 9
  • Marketing 6
  • Marketing for Business Brokers 1
  • Promotion 1
  • Seller Articles 291
  • Seller FAQ 35
  • Selling a Business 195
  • Uncategorized 3
  • Using a Professional 6
  • Valuation 14
  • Workflows 1

Automate, accelerate and elevate your deal making
Email sales@deal-studio.com
Phone (800) 239-5085
Request Media Kit
Platform
» Industry Websites
» Professional Content
» Lead Capture Tools
» Sales CRM
» Deal Management
» Integrated Workflows
Recent News
  • Expectations for Business in 2023
    February 1, 2023
  • 5 Ways that Sellers Can Focus on the Positives
    January 19, 2023
  • The Top 3 Reasons Why Deals Fall Through
    January 11, 2023
Newsletter

Terms of use | Privacy Policy

© Copyright 2022 Business Brokerage Press, Inc. All Rights Reserved.