Goodwill
Goodwill is the invisible added value of a business. Some things can be calculated precisely, such as inventory and stock. But other things such as skilled and motivated staff are valuable but more difficult to assess. This is called goodwill and is included in the selling price.
2 types of goodwill
There are 2 types of goodwill:
- Business goodwill: this is goodwill arising from the fact that the business produces a distinctive product. Business goodwill also exists if the business has a well-organised structure or very customer-friendly staff, and so generates higher profits.
- Personal goodwill: this is goodwill associated with the entrepreneur themselves. For example, a pedicure with a special treatment technique, or a hairdresser who makes every hairstyle unique.
Examples of goodwill
Is your bakery with a good reputation in the area or a unique bread recipe worth more than other bakeries? Unfortunately not. Only if you consistently make extra profit from this special bread will the value of your business be higher due to goodwill. The value of a business can also be higher because it has a strong brand, or a patent.
How do you calculate goodwill?
Only company goodwill influences the value of your company. For example, a good reputation, its products, patents, and special recipes. If your successor wants to produce the same unique bread, they will have to pay for the recipe.
Personal goodwill does not affect the price; after all, you are leaving the company and taking your special skills with you. Get an expert to calculate your goodwill for you, for instance an accountant or financial advisor.
Flexible agreements on the payment of goodwill
If you and the potential buyer cannot agree on the goodwill value, you can choose for an earn-out construction. That way, you agree that:
- the buyer pays part of the goodwill sum directly upon transfer of the company;
- after a period you have both agreed on, the company results are measured;
- if the company still makes extra profit because of the motivated staff or unique bread recipe, the buyer pays the rest of the goodwill sum.
What are the tax rules for goodwill?
If your successor pays an amount for goodwill, the Netherlands Tax Administration will view this amount as part of the discontinuation profit. You must taxes over this profit. The buyer can deduct the goodwill from the gross company profit, keeping it low.