Business Goodwill - What's It Worth?

First, let's break down exactly what goodwill means. When business owners say “goodwill” they usually mean economic goodwill and not accounting goodwill, which is a plug number on a balance sheet.

Economic goodwill refers to the the fair market value of a business that is over and above the value of its tangible assets and its identifiable intangible assets. IMPORTANT:  NOT all businesses have goodwill. Only those businesses that can generate sufficient cash flow such that the present value of the cash flow exceeds the value of their net tangible assets and identifiable intangible assets have goodwill.

See the chart below for an illustration: