4.14: Transferable goodwill
Transferable goodwill arises from intangible attributes of a business that have been separated from the owner.
Fully transferable goodwill is rare in small businesses; it is usually only found in businesses that have been able to build systems and teams. A business that continues to generate revenues and good profits while its owner-manager takes a four-week vacation off the grid is likely to have more transferable goodwill than the business that requires the attention of the owner-manager 24/7.
Transferable goodwill is included in the fair market value of a business.
There are many reasons why the goodwill may be transferable; most are related to the fact that it is the business name, and not the owner-manager’s name, that customers and potential customers think of when they consider buying goods or services. Transferable goodwill is represented in such intangible assets as brands, intellectual property, and, to a lesser extent, repeat-customer lists.
At the time of a sale, transferable goodwill will be included in the business’s fair market value. It should be separately identified in the sale documents. Given that this goodwill is fully transferable, the departure of the owner-manager will have little impact on the prospects for the business.
Contact MVI for assistance in understanding the how much of the goodwill in your business may be separately identifiable and transferable.