Goodwill is the term used to describe the ‘good name’ or ‘reputation’ earned by a firm as it trades. If a business provides a good service to its customers, it is hoped that they will come back again and again to you the services of that firm. This in turn will hopefully have a positive impact on the future turnover and profits of the business. In accounting terms goodwill represents an asset to the business and has a real monetary value.
The main characteristics of goodwill are:
The key factors affecting goodwill are:
Specific circumstances when there is a need for the valuation of goodwill:
Goodwill, although not something that can necessarily be shown in black and white, is a vital component of a business’ worth and whether looking to acquire or sell an established firm it is important not to underrate its value.
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