by Peter Scherman of The B&B Team
What exactly is “good will?” Good will is what is known as intangible personal property that is part of a business. With an inn, as we discuss in the article, “The Components of Inn Value,” the base value is real estate. On top of that you have FF&E (furniture, fixtures, and equipment, or tangible personal property). Tangible property can usually be valued fairly objectively. However, often times a business property is transferred at a price that exceeds the sum of the physical parts. The difference is good will.
Good will is the price a person is willing to pay for a business’s marketplace presence (that would otherwise take time to establish), a guest or customer base and list, a good reputation, a track record, good staff and management, and, because of these things, the ability to generate a reliable stream of income.
You can’t see good will, but you can measure it by the price a person pays for it. And the IRS treats it as depreciable property, so you know it’s real!