Top 10 Questions of Value: 4. What Is Goodwill?

Goodwill is defined as the intangible asset arising as a result of name, reputation, customer loyalty, location, products, and similar factors not separately identified. The notion of goodwill has existed since mankind first entered into commercial activity. In ancient Egyptian bazaars, merchants knew the location closest to the city gates would provide the best opportunity to sell goods. In theory, merchants with the best locations could sell their businesses for a higher price. Location is only one example of why an ongoing business is worth more than the sum total of its property or tangible assets. Other elements might include reputation for good products and service, established customers, profitable history, reliable workforce, etc. Tax courts have held that goodwill represents the price paid for a business in excess of the value of tangible assets. But in many cases, determining the value of goodwill is not cut and dried and great differences of opinion will exist as to the value of goodwill.

 

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