Who Exactly Owns Personal Goodwill and Why Does it Matter?
Personal goodwill can have a profound impact on both small and medium-sized businesses. In fact, it can even impact the sales of larger companies. Ultimately, understanding how personal goodwill is cultivated is of great value for any company.
During the process of building a business, a founder builds one or more of the following: a positive personal reputation, a personal relationship with key players such as large customers and suppliers; and the founder’s reputation associated with the creation of products, inventions, designs and more.
What Creates Personal Goodwill?
Personal goodwill can be established in many ways, for example, professionals such as doctors, dentists and lawyers can all build personal goodwill with their clients, especially over extended periods of time. One of the most interesting aspects of building personal goodwill is that it is essentially non-transferable, as it is invariably attached to and associated with, a particular key figure, such as the founder of a company. Simply stated, personal goodwill can be a powerful force, but it does have one substantial drawback. This is as the saying goes, “the goodwill goes home at night.”
How Does It Impact Buying or Selling a Business?
Buying a business where personal goodwill has been a cornerstone of a business’s success and growth presents some obvious risks. Likewise, it can be difficult to sell a business where personal goodwill plays a key role in the business, as a buyer must take this important factor into consideration. Certain businesses such as medical, accounting or legal practices, for example, depend heavily on existing clients. If those clients don’t like the new owner, they simply may go elsewhere.
Now, with all of this stated, it is, of course, possible to sell a business built partially or mostly around personal goodwill. Oftentimes, buyers will want some protection in the event that the business faces serious problems if the seller departs.
Solutions that Work for Both Parties
One approach is to require the seller to stay with the business and remain a key public face for a period of time. An effective transition period can be pivotal for businesses built around personal goodwill. A second approach is to have some form of “earn-out.” In this model, at the end of the year lost business is factored in, and a percentage is then subtracted from monies owed to the seller. Another option is that the funds from the down payment are placed in escrow and adjustments are made to those funds. It is important to note that the courts have decided that a business does not own the goodwill, the owner of the business does.
No doubt, businesses in which personal goodwill plays a major role, present their own unique challenge. Working with an experienced professional, such as a business broker, is an exceptional way to proceed in buying or selling this type of business.
Copyright: Business Brokers Press, Inc.
Read MoreVeritext Acquires David Feldman Worldwide Court Reporting
Veritext, the national leader in court reporting and litigation support solutions, announced that it has acquired David Feldman Worldwide (DFW) Court Reporting. DFW’s experience with very complex litigation cases and exemplary customer service complements Veritext’s full breadth of technical solutions and world-class data security. Together they will offer clients of both companies premier court reporting and litigation support solutions.
“DFW’s expertise in very complex litigation fits well with the experience and advanced technology Veritext brings to the table,” said Nancy Josephs, Chief Executive Officer of Veritext. Clients of DFW will have immediate access to Veritext’s state-of-the-art deposition suites, multimedia depositions, document repositories, remote depositions, online and mobile scheduling, paperless depositions and more. In addition, they will experience the world-class, HIPAA-compliant data security Veritext offers. “Combining the services of both companies makes the perfect union,” Josephs continued.
DFW was founded by David Feldman in 2002 along with his two children, Michael and Sheril, who have owned and operated the company since 2009. DFW’s client-facing team will stay on with David Feldman Worldwide, a Veritext Company after the acquisition, ensuring that clients will receive the same stellar service they have come to expect. DFW is based in New York City and serves clients across the United States and in foreign locations.
“By joining with Veritext, we will be able to offer our clients a full breadth of technology solutions to make the deposition process more effective. They will also have access to the more than 50 Veritext offices around the country,” said Michael Feldman, President of David Feldman Worldwide, a Veritext Company. “Veritext shares our commitment to quality court reporting and impeccable service, which makes this transition the perfect fit for our clients and our employees.”
Veritext is the largest nationwide provider of deposition and litigation support solutions, providing court reporters, advanced technology and services to law firms and corporations across the United States. Veritext has been serving the legal community since 1997 and has extensive experience in all types of complex litigation. The company recently announced acquisitions in Florida and New Jersey and their expansion in the St. Louis marketplace. More information can be found at www.veritext.com.
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