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Personal Goodwill

Definition - What does Personal Goodwill mean?

Personal goodwill relates to the ability, skills, experience, contacts and reputation of the individuals within a business. It resides with the individual, is not transferable, and has little or no commercial value.

Personal goodwill is in direct contrast to commercial goodwill which is transferable, sustainable and has value that a buyer will pay for in an acquisition.

Divestopedia explains Personal Goodwill

It is well documented that valuable and sellable businesses should operate without needing the owner at the helm. If the owner is a big part of maintaining relationships with customers, delivering quality service, driving revenue growth, etc., goodwill is tied to the owner (personal goodwill) and not the business. In this instance, the maximum value of the business to a buyer is only the value of the tangible net assets.

Building a business reliant on systems and processes will shift the perception of goodwill from personal to commercial. Adding a second in command (2IC) will also help by allowing the owner to focus on higher-level items, such as strategy and processes rather than figthing daily operational fires.

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Resources

  • Equicapita: Equicapita
    Equicapita's model is to acquire established, private small and medium sized enterprises (“SMEs”) located primarily in Western Canada.
  • Evolution Capital: Evolution Capital
    Leaders in growing small business.