It’s no secret that how people perceive a company and the company’s 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 public’s perception of their brand.
As a small business owner, wouldn’t 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 'quantify' the strong brand and positive image that you’ve worked to achieve for your business?
You can, and it’s called 'goodwill' or 'business goodwill'. A crucial asset when determining a company’s overall valuation, goodwill reflects the portion of a company’s value that owners can’t ascribe to cash or physical assets. In this sense, a business’s true worth is often far more than the value of its individual, tangible, 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.