Businesses can have a variety of valuable assets, including securities, real estate, costly equipment, and expensive office space. However, some of a company’s most valuable equity is in intangible assets, such as customer goodwill, client lists, and name recognition. Although these assets are often intangible, they can and should be appraised and valued during bankruptcy proceedings.
The concept of goodwill is based on a business’ reputation and its relationships with a variety of different people and entities, including customers, clients, vendors, and the local community.
Generally, goodwill can be attributed to a variety of factors, such as:
- The popularity of a brand name;
- Good customer relations;
- A solid customer base; and,
- Patents and trade secrets.
These factors combine to create a measure of a business’ reputation, which includes the likelihood that customers will remain loyal in the future.
Methods of valuation
The increasing use of social media across a number of industries nationwide has helped simplify the process of measuring goodwill. For instance, a company’s owner can point to the number of “likes” on Facebook or how often a statement is “re-tweeted” to establish customer familiarity with a brand. This type of evidence is especially important in the context of valuing goodwill because reputation cannot be protected in the same way as intellectual property. For this reason, it is important for businesses to manage and document goodwill before beginning bankruptcy proceedings.
When calculating the value of goodwill, a valuation expert will attempt to separate professional goodwill, which attaches to a particular individual, and business goodwill, which is derived from the characteristics of a particular business. To allocate value, analysts will consider a variety of objective factors, including:
- What a qualified buyer would pay for the business if the owner were allowed to compete in the same industry in the same area;
- Amounts paid for non-compete or consulting agreements; and,
- The market price of the company’s publicly traded stock.
Whether goodwill is defined as personal or business can have significant repercussions on the outcome of a bankruptcy case, so if you or a loved one own a business and are considering filing for bankruptcy, it is crucial to speak with an experienced bankruptcy attorney before filing your petition.
Contact the Kridel Law Group to speak with an experienced New Jersey bankruptcy lawyer
If you are a New Jersey business owner seeking a valuation of your business for bankruptcy purposes, please contact a member of the dedicated legal team at Kridel Law Group by calling (973) 470-0800 and we’ll help you schedule a case evaluation with a knowledgeable bankruptcy attorney.