Myth #5 – Most Purchasers will not pay a significant amount for goodwill.

We normally meet with several new prospective purchasers each week. The purchaser when learning that the goodwill represents as much as 50% or more of the company’s value usually tells us that they are not willing to pay much for goodwill – especially in a small business, where transferable goodwill is difficult to support.

The fact is that we have not sold a business without goodwill and the majority of our businesses feature a significant amount of goodwill. We have not had a problem marketing businesses with significant levels of goodwill.

It is sometimes difficult to understand some purchaser’s reluctance to pay for goodwill, especially when part of their purchase criteria is to purchase a profitable and established business. If a purchaser wants an established and profitable business then it is only logical that the offering price includes goodwill and furthermore the stronger its market position and annual sustainable cash flow the larger its implicit goodwill.

Our reality is most of the small business purchasers we meet want an established and profitable company and are willing to pay for a significant amount of goodwill.