What Is Goodwill?

GOODWILL CAN BE DEFINED AS…

“THE EXPECTATION THAT A BUSINESSES CUSTOMERS WILL CONTINUE TO PATRONISE IT REGARDLESS OF WHO THE OWNER IS”

Let us examine three different businesses:

  1. A newsagency

        2. A hairdresser

        3. A television network

Do you really care who serves you in the newsagency? Within reason, you will be in the habit of using a certain newsagency and your habit will be ingrained. What you really like is that it is convenient and that it has a product you habitually need, such as a daily newspaper or bus card or lotto ticket. So long as the person who is serving you is efficient and friendly you won’t change newsagencies. This is called locational goodwill.

But what about the hairdresser? Sure it may be convenient, but what if your favourite hairdresser sells the salon and the new owner just doesn’t cut your hair the same way? Chances are you will move to a more convenient location or alternatively follow your favourite hairdresser to their new salon! This is called personal goodwill.

How many years have you been watching the six o’clock news on the same station? You may be stuck on Seven or you may be stuck on the ABC or Nine but chances are you are “rusted on” to one TV news service and you won’t change easily! This is called brand goodwill.

Understanding their goodwill helps the TV networks chase ratings. The higher their ratings, the more they can charge advertisers.

GMO understands goodwill in all its forms (brand goodwill like channel nine, locational goodwill like a newsagency and personal goodwill like a hairdressing salon.)

 

To have your business’ goodwill assessed by a professional, contact the GMO office on (08) 9481 4422.

Whether it’s the goodwill of your business or a business you are looking at purchasing, it’s vital that the figure on paper reflects the business in question. 

 

MORE NEWS STORIES

Words of Wisdom from Sir Michael Caine

"I want the feeling in the whole unit to be one of excitement at our common endeavour." GMO's Director and Co-founder, Graham O'Hehir has recently been reading Sir Michael Caine's autobiography 'Blowing the Bloody Doors Off Read more

Q&A With Thorntons Accountants

Jim Goodwin from GMO and Clinton O’Neill from Thorntons discuss Capital Gains Tax on sale of a business. You should consider these implications as part of your business sale plan.   J.G:      Do I pay tax on Read more

The Forecast For Perth’s Retail Sector

According to a recent publication by Ray White, the future of Perth's economy is bright. After what has been a turbulent time in WA business and real estate, especially with the increase of online shopping affecting Read more