Itβs no secret that how people perceive a company and the companyβs standing in the marketplace have a profound effect on its overall financial success. Just look at the positive reputation enjoyed by companies like Apple and Starbucks, and how it affects the prices of goods sold. These companies can increase the purchase price of their products because of the publicβs perception of their brand.
As a small business owner, wouldnβt it be great to assign a dollar value to the positive reputation that your firm carries? One that you could use as part of your business valuation? What if there was a way to βquantifyβ the strong brand and positive image that youβve worked to achieve for your business?
You can, and itβs called βgoodwillβ or βbusiness goodwill.β A crucial asset when determining a companyβs overall valuation, goodwill reflects the portion of a companyβs value that owners canβt ascribe to cash or physical assets. In this sense, a businessβs true worth is often far more than the value of its individual βtangible β parts.
Recognising goodwill accounting practices could be worthwhile for small businesses because it could allow you to more accurately determine the fair value of your company. This, in turn, would make you more attractive to potential investors.
In this article, weβll answer important questions like, βWhat is goodwill in accounting?β, βWhat is goodwill in business?β and βWhat is goodwill on the balance sheet?β By the end of this article, you should have a much clearer understanding of what goodwill is and how it can impact your companyβs financial statements.