Valuing a business for sale can take time. But when an owner does a company valuation calculator for a company on their own or with intermediaries like WebsiteClosers they must also consider intangible assets. They are often forgotten, and that is wrong.
Intangible assets can bring as much income as warehouses or premises. To realize their total value, they have created such an indicator as Goodwill. Let's find out more about what it is and how to calculate it.
Why this indicator is important to consider
When figuring out how to find goodwill of a business, it is equally important to understand why it should be taken into account. This indicator includes:
- brand recognition;
- company reputation
- intellectual property;
- trade secret assets;
- other intangible assets.
With Goodwill, these parameters can be quantified. As a result, the buyer will have a complete picture of the state of the business being purchased. The seller, in turn, will realize the real value of his enterprise and will not be cheap when setting the price for it.
As you can see, this indicator is extremely important for businesses, and understanding goodwill calculation for businesses will help to improve their valuation for sale. All that remains is to understand how to calculate it correctly.
How to calculate Goodwill
There are many ways to calculate Goodwill. However, in general, the Goodwill calculation formula explained the prospects of a business without its tangible assets. To calculate it, a profit and loss statement is used. For comparison, the indicators for the last 3 years are taken to estimate the average level of income.
Then it is adjusted for unforeseen expenses and income from the enterprise. After that, the resulting profit is reduced by the payment of wages. Also, take away interest from equity capital. Thus, we get excess profit. It is multiplied by a coefficient from 2 to 6. What exactly will be the coefficient is determined by negotiation. But the resulting figure after multiplying by the coefficient will be the Goodwill.
Features of Goodwill
This indicator is an intangible asset and it is extremely difficult to calculate it. Despite all the methods for calculating business goodwill sellers often put their ideas and ideas into it. At the same time, for the buyer the embedded values will not always play the same role and they would exclude them.
An important feature of intangible assets is that they can serve the buyer indefinitely. But they may also have an amortization period that must be taken into account. For example, a company's developed domain will sooner or later be oversaturated with users. It will have to buy new equipment to allow more users. All this will affect the calculation of Goodwill. As you can see, this is quite a specific indicator and you need to know who of the experts can calculate it.
Who can help you calculate Goodwill
First of all, an accountant can help with this. Calculating goodwill in accounting can often be found in the final balance sheet of a company. Also, this work can be entrusted to intermediaries. For example, it is a hired financial analyst or business broker. It remains only to find such a company that can help to calculate this indicator correctly.
Website Closers representatives are ready to go through with you all the steps to calculate goodwill value and provide you and the buyer with an independent and honest calculation, including the valuation of intangible assets. In our team, we have specialists of different profiles and we can relieve you of the responsibility of preparing the calculation of goodwill.