Protecting the value of goodwill


When a business is sold, goodwill is often included in the sell price.

Goodwill is intangible (not a physical thing) and is an extra premium paid to cover such things as the brand, IP, customer database, supplier relationships, contracts and loyalty of staff. The amount of goodwill paid is relative to the success and reputation of the business being sold.

If you have sold a business with a material amount of goodwill included in the sell price, that’s fantastic! If you have bought a business and paid an amount of goodwill, then you will be wanting to protect its value as you move forward. There is always the option of starting a business from scratch so if you are prepared to pay goodwill it doesn’t make any sense to destroy it.

Here are some helpful tips and ideas for protecting the goodwill you have paid for:

Presumably, the brand has a strong reputation with strong recognition so think carefully before changing the name of the business.

You may want to review exactly what the IP (intellectual property) of the business amounts to. Some examples of IP would be trade secrets, designs, inventions, and logos. Is there anything more you need to do to ensure it is protected? You may like to go to the website of https://www.business.govt.nz and search intellectual property. It provides a helpful checklist to work through and provides ideas for protection.

Keep close to the staff that have come with the business – communicate with them and establish who the key staff are. No-one likes change and it is common for staff to get the ‘jitters’ when the business they work for is sold. You don’t want to risk losing key staff to competitors during the phasing in period.

Hopefully, you will have reviewed the customer database as part of your due diligence prior to purchasing the business but take time to fully understand who your clients are as this is paramount to the future success of the business. Analyse your database in different ways: geographically, monthly spend (including top 20), years as a customer, product or service breakdown, and any other way you can slice it apart. In most cases it would be beneficial for the seller of the business to assist with handover of customers, providing you with
relevant background on each.

At the very least, there should be a phone call to each customer with a follow-up email and a visit to the top clients as soon as you can. Listen to what they need from you and establish what things are important to them. Ensure you deliver exceptional service from the get-go.

Three months down the track, take the time to meet with customers again and check they are happy with the changeover process. Listen to them and tweak things.

If you are purchasing a business to clip onto your existing business, there needs to be a streamlined process in place to ensure the two cultures meld together and, yes, customers do need to be treated with the utmost respect.

If you are a larger business, you may have a much broader approach whereas the clients from the smaller business may be used to a very personal service.

Customers changing over can be quite unforgiving. They will give you one chance to prove yourself. If you don’t come up to their expectation, you run the risk of them not returning and they’ll tell their friends and they’ll tell their friends.

It would be a good idea to assign one of your team the responsibility of managing client relationships for a period of months. It will give you structure and oversight.

It is easy to think we have much better ideas than the previous owners and then set about changing everything – remember the customers chose to deal with that business (prior to you buying it) for some reason or other. Of course, implement improvements and change the way you do things over time but not all at once, particularly if the business was previously successful.

If you don’t get it right, customers will simply walk away. Get it right and you will only increase the value of your goodwill!


About Author

Brenda Williamson

Brenda Williamson runs business advisory service Brenda Williamson and Associates www.bwa.net.nz