Business Goodwill: What is It?

When a business is damaged because of something that someone else does—say, stealing intellectual property or defaming the business—one element of damages that a business can seek is goodwill or the loss of goodwill that their business has suffered. But what is good will?

Easy to Define, Hard to Measure

It’s easier to define what good will actually is than it is to measure what it is worth when it is lost by a business.

Good will is simply a business’ reputation in the public eye and the reputation that the business has earned through its past, presumably positive, dealings with the public.

There is an irony to goodwill. On the one hand, it is the hardest measure of damages to actually quantify and prove. There is no way to exactly calculate it, and in some cases, to even measure whether a business has lost its reputation in the public eye, much less to value what that loss may be worth.

But despite that difficulty, it is, potentially, a more serious and significant loss than any hard dollar figure.

The continuing goodwill of the public is the lifeblood of any business, and losing it can equate to more damages than any contract or civil wrong. Goodwill may even encourage the general public to pay more for your product and service than they ordinarily would, just because of the goodwill associated with your business, or brand.

How is it Measured?

Accountants and business valuators have formulas to account for goodwill—usually based on some sales or profit measure in the past few years, times a multiplier. This is an attempt to quantify what in reality is difficult to calculate, but a good expert in the field who knows what the commonly accepted accounting methods are to account for goodwill can be a vital expert in proving damages.

Good will can add significant value to a business, value that goes beyond hard assets. It can multiply damages when goodwill is lost, or increase the sale price of a business when goodwill is factored in.

How Goodwill Can be Lost

Goodwill can be lost in a number of ways. Sometimes, the loss of a physical space where a business is located can cause it to lose goodwill. Perhaps the business is forced to move because of a rent dispute from a higher rent, more prestigious location, where it has built up a local client base, to another location where it now must start fresh.

The loss of someone associated with a business such as a name partner, or someone closely associated with the business’ products or services can lead to a loss of goodwill.

Of course, bad press, or defamation, or misappropriation of the business’ officers or branding can lead to the loss of goodwill.

What About Intellectual Property?

Yes, your intellectual property—your sayings, jingles, logos, etc.—all play a role in good will, but good will is more than simply intellectual property, or the loss or misappropriation of it. And loss of goodwill shouldn’t be confused with IP infringement–a different claim, with a different measure of damages.

Call the West Palm Beach business litigation lawyers at Pike & Lustig today to talk about how we can help you with your commercial litigation case if your business has been wronged by someone else.

Sources:

investopedia.com/terms/g/goodwill.asp#:~:text=Goodwill%20is%20an%20intangible%20asset,valuable%20but%20not%20easily%20quantifiable.

gocardless.com/en-us/guides/posts/what-does-goodwill-mean/