WHAT IS GOODWILL? MAIN FEATURES - CULTURE VOCABULARY - 2025

The goodwill is the value that is given to a company as a result of intangible assets, among them the prestige that the company has built customers linked to the company, the foundation of a recognized brand in the market in which performs, among other qualities.

These intangible values ​​correspond to an advantage that a particular company has in relation to its competitors in the sector, and they constitute a guarantee that said company can present at the time of requesting loans that allow it to continue carrying out activities in search of the growth of the company.

Since they are based on intangible values, very specific strategies must be used in order to assess the real value of a company. To do this, there are ways to define them and calculate their estimated value.

One way to determine the value of these qualities is to analyze the results that have been generated as a result of the presence of these values. For example, it is not possible to measure the confidence of the clientele in the provision of a specific service provided by a company, but the number of people who hired said service during a certain time can be counted.

There are also methods to measure the level of acceptance that this service had on the part of the people who hired it at that time, as well as the probability that said people will rehire the same service or others offered by the company.

The elements that are taken into account to determine the value of these impalpable qualities have to do with the total performance that a company enjoys and the calculation of the probable time that this company will be able to remain productive within the market in which it operates.

What are intangibles in goodwill?

Within a company, elements such as machinery, the number of employees or the computer equipment available would be the tangible values. In turn, intangibles are those non-tangible values ​​or elements that provide the goodwill of a company. These can be reputation, social responsibility, brand, etc.

The latter are the ones that really add value, since they have the ability to show the utility for the consumer of your product or service.

To do this, an internal and external communication strategy (brand and corporate reputation) is followed or programs and activities are carried out to serve the community (social responsibility).

Among the characteristics of intangibles, we find that they are elements that are not physical or do not have a physical entity, are perceived through recognition, generate trust and have good publicity, among others.

Main characteristics of goodwill

1- It is granted on intangible values

Commercial loans are characterized by being assigned based on intangible values ​​of a company but which, at the same time, can be bought and sold. These intangible qualities are a fundamental part of the essence of a company.

Intangible values ​​are not only associated with large, medium or small companies. Any company can have these kinds of qualities; in fact, the ideal is that companies strive to cultivate these values, which are fundamental to the life of a company.

For example, an intangible value of a company can be the clientele. A company that has cultivated its audience for a certain amount of time, that has a clientele that has demonstrated loyalty, can take advantage of this value.

Another intangible quality of great value can be the reputation of a company. When customers are sure that the company in question will solve their needs, trust the products or services offered by it and are guaranteed that their purchases will be satisfactory, it can be said that said company has a good reputation.

But perhaps the most important intangible value has to do with the concepts associated with the operation of a company.

In English this term is known as “know how” and is linked to all those methods, procedures and strategies that a company puts into practice in order to function successfully.

2- It is not recorded in the accounting

Since the granting of commercial loans is based on the intangible values ​​of a company, they cannot and should not be registered in the accounting field.

It is recommended not to record this element in the balance sheets of a company because it constitutes a non-quantifiable value and, in addition, it is an estimated value.

Goodwill is taken into account as part of the equity of a company. It can only be considered in the accounting of the company if some resources were used to acquire this goodwill.

3- Applies to companies

Goodwill is a figure that is granted exclusively to companies. It is the economic possibility that they have so that they can carry out investments or improvements in different areas of the company, through the recognition of their intangible values.

Any type of company can benefit from goodwill. However, this figure is very convenient especially for those small and medium-sized companies that need resources to continue promoting the growth of their company, and that can provide as endorsement the solid support that they have been building during the time in which it has been running.

Goodwill acquired

Acquired goodwill refers to the payment made by a person or a group of people to acquire the intangible values ​​of a company.

Thus, the buyer is a person who has not created the company, and acquires it in its entirety, or only part of it, already in operation, with the qualities and prestige that it has been developing during its useful life.

The value of a company can increase considerably once these intangible values ​​are taken into account, because what the buyer will obtain will not only be the physical structure or name of said company.

You will also get everything you have built over the years, both in the areas of training and systematization of processes, as well as in the areas of customer and investor relations.

Part of what the buyer acquires is, for example, a loyal clientele, an established brand and recognition as a solid company and guarantor of consumer rights.

It also acquires a very important element: the relationships established between this company and others in the sector, or other influential bodies, institutions and individuals in the field in which said company operates, among other intangible values.

It is important to note that it will be up to the buyer of the company to maintain a high level of those intangible values ​​that were the subject of the sale. For example, one of the most outstanding intangible values ​​is the trust of customers in a specific company.

The new buyer of the company, or a fraction of it, is responsible for maintaining the trust of its customers in the products and services it offers.

Goodwill example

In 2000, two brothers founded a small hardware store in a large city. They have an initial investment of $ 6,000 to buy a store and another $ 3,000 to purchase two key copying machines.

At first, most of their clients were from the neighborhood where they started the company, since they had no competition. Over time, the locksmith increases its profits due to the good work of the brothers, becoming the main reference in the copying of keys in the city.

It is when they decide to make another investment and acquire another store for $ 10,000 and buy two more new key copying machines, costing a total of $ 3,000.

The profits multiply and the neighboring towns begin to move to the Plaza Grande locksmith to copy keys.

It's 2015 and the business has gone from a potential neighborhood clientele of 3,000 people to a metropolis clientele of 300,000 people.

At that time, the brothers' locksmith had a tangible $ 16,000 in physical spaces and $ 9,000 in machinery, for a total of $ 25,000. However, a foreign investor decides to buy the locksmith by offering $ 600,000.

The buyer decided to offer that amount due to goodwill, based on a loyal clientele that provided good income. In other words, he knew that he could pay or recover that amount soon with the key sales of his new company.

Thus, the difference between the 600,000 dollars and the 25,000 dollars of the machinery and premises would be the goodwill of the new buyer.

References

1. Juárez, C. "Mercantile credit" in Online Legal Encyclopedia. Retrieved on September 11, 2017 from Online Legal Encyclopedia: mexico.leyderecho.org
2. "Goodwill" in Gerencie. Retrieved on September 11, 2017 from Gerencie: gerencie.com
3. “Mercantile credit” in Credit Bureau. Recovered on September 11, 2017 from Credit Bureau: burodecredito.com
4. "Good Will" in Business Dictionary. Retrieved on September 11, 2017 from Business Dictionary: businessdictionary.com
5. "Accounting treatment of the Good Will formed and acquired" in Gerencie. Retrieved on September 11, 2017 from Gerencie: gerencie.com
6. Briceño, M. "File number 41001-23-31-000-2000-03650-01 (16274)" (2009) in the Universidad de Sonora Digital Library. Retrieved on September 11, 2017 from the Universidad de Sonora Digital Library: uson.mx.