We value goodwill for practice sales, partner and shareholder exits, incorporations and transfers, tax and matrimonial proceedings.
When is this valuation required?
- A professional practice or service business is being sold.
- A partner is joining or leaving a partnership or LLP.
- A sole trader or partnership is incorporating and goodwill is transferring to the company.
- Goodwill is relevant to a tax computation or HMRC enquiry.
- The goodwill of a business is an issue in divorce or a partnership dispute.
Who instructs us?
- Practice owners, partners and members
- Accountants and tax advisers
- Family and commercial solicitors
- Buyers and sellers of practices
What exactly is valued?
We distinguish between transferable goodwill, which stays with the business when ownership changes, and personal goodwill, which depends on an individual and would leave with them. The difference often explains why two practices with similar profits sell for very different amounts.
How is value assessed?
Goodwill is commonly valued as the difference between the value of the business as a whole and the value of its identifiable net assets, or directly through the excess earnings the business generates over a fair return on its other assets. In each case the starting point is maintainable earnings after a market rate of remuneration for the people who do the work.
For incorporations and other transfers between connected parties, the value is assessed on a market basis that ignores the relationship between the parties.
How the approaches are usually weighed
Typical
- IncomeExcess earnings over a fair return on other assetsUsual starting point
- AssetBusiness value less identifiable net assetsCross-check
- MarketComparable transactionsWhere relevant
What factors influence the result?
- Personal relationships
- Whether clients follow the individual or the business.
- Recurring income
- Repeat clients, contracts and subscription income.
- Location and brand
- Reputation and position that do not depend on any one person.
- Workforce
- Whether the team stays and serves clients after a change of ownership.
- Restrictive covenants
- Whether the departing owner can be prevented from competing.
What information is required?
- Accounts showing fee income and profits
- Analysis of clients, fee sources and recurring income
- Details of owners' remuneration and the roles they perform
- Partnership or LLP agreements
- Any restrictive covenants
We send a tailored information request once the scope is agreed.
What report will you receive?
We report the value of goodwill, the method used and the split between personal and transferable goodwill where relevant, with supporting analysis suitable for the purpose.
See types of business valuation reports for how the scope of each type differs.
Timing and cost
How long will it take?
Goodwill valuations of single practices are usually completed within a few weeks of receiving information. Partnership matters may need input from several partners.
How much does it cost?
The fee depends on the business, the purpose and the level of reporting. We quote in writing once the scope is agreed.
How our fees are set →Frequently asked questions
What is the difference between personal and business goodwill?
Personal goodwill depends on an individual's skills and relationships and would leave with them. Business goodwill stays with the business when ownership changes. Only transferable goodwill is generally valuable to a buyer.
How is goodwill valued for incorporation?
At market value, as if transferred between unconnected parties, which normally means valuing the excess earnings the business generates after a market reward for the work of its owners.
Is goodwill relevant in divorce?
Often. Courts and experts consider how much of a business's value depends on the owner spouse and how much could be realised. We explain the position for the particular business.
Can a business have no goodwill?
Yes. If profits do not exceed a fair return on the assets and a market salary for the owners, there may be little or no goodwill.
Do you value goodwill in professional practices?
Yes, including accountancy, legal, dental, medical, veterinary and consultancy practices, each of which has its own characteristics.
