As a business creator, you need to know the definition of goodwill, even if the project you want to implement does not directly concern a commercial activity.
Goodwill is a legal term used in commercial matters. It refers to a set of tangible and intangible elements necessary for the exercise of the professional activity. Before buying a goodwill, it is essential to master all aspects of the transaction and to know what this concept covers.
The law does not clearly define goodwill. According to case law, goodwill corresponds to all the movable property that a merchant organizes to acquire customers. It consists of tangible and intangible elements. Remember that corporeal elements are tangible, concrete, material or building goods. These include, for example, furniture, tools or fittings. Intangible elements are non-tangible assets, used for the operation of the activity (right to lease, brand, patent, etc.).
Customers are the most important component of goodwill. It designates the people who usually go there because of the skills and experience of the operator. Customers should therefore not be confused with goodwill, which refers to transient customers. It must be real, certain and specific to the operator.
It is important to specify that a goodwill does not contain immovable property. Thus, in the event of resale, it will be imperative to draw up a deed for the transfer of the business and another for the sale of the premises.
The evaluation of a goodwill is carried out on the basis of scales by profession available at the Chamber of Commerce or Trades. It is necessary to calculate the average of the turnover including tax of the last three years and to multiply it by the coefficient of the profession. Other elements must also be taken into account such as the geographical area, the amount of rent and market trends.
It is possible to estimate the value of a goodwill based on the profit of the company. Simply multiply the amount of the result by the coefficient of the profession. Finally, another valuation method is based on the company's forecast future revenues. This is based on forecasts and not figures from established financial statements.
Estimating the value of a goodwill is particularly complicated. Indeed, there is no systematically used calculation formula. The many methods of financial valuation constitute a first source of difficulties. Then, several parameters can impact the valuation. The entrepreneur must be able to understand them correctly. Given the large number of factors that can influence the value of a fund, it is not possible to determine an exact price. Moreover, the law does not impose any procedure on the parties to proceed with the estimation of the goodwill.
