Separating the fair market value of the goodwill attributable to a company’s owner (aka personal goodwill) versus the goodwill value directly tied to the business enterprise can have a significant impact on the tax implications (and resulting tax liability) to a business owner from a sale of their business. A brief summary of the difference between Personal Goodwill and Enterprise (Company) Goodwill is provided below:
Personal goodwill represents those intangible economic characteristics, and the related intangible asset value, that are attributed to the individual. Examples of intangible assets that may be includable in the personal goodwill category include the individual’s reputation, the individual’s specific skills and knowledge set, and the personal relationships between the individual and the referral sources. These intangible characteristics may be considered inseparable from the individual.
The rights to an individual’s goodwill may be transferred. An individual may block/restrict his/her personal goodwill attributes, transfer his/her rights to use those personal goodwill attributes or help build somebody else’s personal goodwill. For example, with assistance, a portion of the attributes from personal relationships can be transitioned to a new owner of the business relationship.
Enterprise (Company) Goodwill
Company goodwill represents those intangible economic characteristics, and the related intangible asset value, that are attributed to the business entity. Examples of intangible assets that may be includable in the company goodwill category include the company’s name, location, phone number, customer list, accounting records, trained and assembled workforce, etc. These intangible characteristics may be considered separable from the individual, and more readily transferable.
The professionals at Mack Business Appraisals, LLC have the expertise needed to assist with the preparation of a business valuation report to provide a documented and defensible analysis and allocation of the goodwill between personal goodwill and enterprise goodwill.