There are multiple ways to complete the business valuation process, and many of them involve looking at a company’s tangible and intangible assets very carefully. The reputation of the organization and the goodwill that it has fostered with individual employees, other businesses and the community as a whole can be an important factor in the business valuation process, as they can have a major impact on the company’s future success.
The process of evaluating intangible business assets and incorporating them into a company’s value can be a challenge. If there is a lot of trust and respect for the brand locally, then the business will likely see plenty of future revenue based on that positive reputation. If an executive has negotiated airtight employment contracts with restrictive covenants, that will also impact its likely future success.
When the goal of the business valuation process is to divide the value of the company in a divorce, the differentiation between personal goodwill and enterprise goodwill can become a major consideration. What separates enterprise goodwill from personal goodwill?
Enterprise goodwill stems from business activities
Companies develop enterprise goodwill through regular operations, not necessarily the work of one employee. One example of enterprise goodwill is a company’s contract to continue doing business with another organization. Factors ranging from the location of the business to how well the company operates as an organization can influence public perception and goodwill toward the organization.
Personal goodwill relates to personality and relationships
Many businesses are the product of one professional or entrepreneur’s hard work. A professional practice where a physical therapist has gone out to patients’ homes to care for them even on weekends would benefit from the personal goodwill developed because of those relationships and an individual’s professional manner.
It can be quite a challenge to tease out enterprise goodwill from personal goodwill during divorce proceedings, but doing so is of the utmost importance both for the spouse who hopes to retain control over the business and for those seeking a fair portion of the business’s value in divorce proceedings. Exploring the factors that influence business valuation may help people better prepare for negotiations and litigation related to property division.
