The term "goodwill" is becoming increasingly recognized, by those outside of the accounting profession, as a type of asset. Recognition, however, falls short of understanding. Is such an asset desirable? How do you get goodwill and what do you do with it? Does goodwill impact value?

Goodwill is the intangible value of an enterprise arising from the name, reputation, customer loyalty, location, products and other factors not separately stated, identified or valued, that generate economic benefits.

Goodwill will generally appear on the balance sheet of a company as an asset. The book value of goodwill is derived from the purchase price paid for the stock or assets of another company. The difference between total price paid and the fair market value of each identifiable, tangible asset, is recorded as goodwill. This suggests that part of the acquisition price is attributable to the value of intangible assets, or goodwill.

In certain situations, goodwill may be considered as professional goodwill rather than as enterprise goodwill. A common scenario with professional goodwill involves individuals with credentials which include a professional license. In many cases, such as a small professional practice, the value of the business is largely reflective of one individual with skills, talent, and a reputation for being knowledgeable in an area of expertise. If that individual left the practice or business, much of the customer base might also leave. The value of the business would be sharply reduced. The value attributed to such a case is largely considered to be professional goodwill. This distinction is important in arriving at a value for many businesses. State laws vary in how professional goodwill is distinguished from enterprise goodwill. This distinction is important in the identification and valuation of marital assets in a divorce. Whether or not state laws consider professional goodwill, a personal asset, to be subject to the division of marital assets can have a dramatic impact on divorce settlements.

When selecting a Valuation Analyst, you should make sure you choose one with the qualifications and scope of experience you deserve. Some important qualities to look for include: