In finance and accounting terms, goodwill is defined as the excess of price paid less the assets of the business at fair value (the value they can fetch in an open market).
Hmm. Back to the car analagy. When you buy a car you can drive away in, you place some kind of value on the freedom it will give you, that it has been serviced regularly by a dealer, that the owner was a little old man who only used it three times a week, and washed it every weekend. That’s goodwill.
In a business, you have to think differently about goodwill that will be recognised when the transaction happens, and the economic goodwill that the business has in terms of it’s customer relationships, intellectual capital such as patents, brands and their value etc.
They’re pretty intangible things, and difficult to value without subjectivity. Each of the different small business valuation techniques has goodwill within it somewhere even if not explicitly recognised.
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The Concept of Goodwill
Posted in Business Plan | 
Tags: accounting terms, excess of price paid less, fair value, finance, finance and accounting terms, goodwill, open market