Goodwill is the value of a business beyond its physical assets. It can include reputation, customer relationships, trading name, location, repeat business, systems and the expectation that customers will keep buying after completion.
Quick Answer: What is goodwill in a business sale?
Goodwill is the extra value a business has beyond its tangible assets — things like stock, equipment, vehicles and furniture. It is the premium a buyer is willing to pay because the business has something more valuable than the sum of its physical parts.
Consider a local café. Its equipment, furniture and stock might be worth £30,000 if sold individually. But a buyer may be willing to pay £200,000 for the business as a going concern — because it has loyal customers, strong reviews, an excellent location, trained and reliable staff, a recognisable name and a track record of consistent profit. That extra £170,000 is goodwill: the value of what the business has built beyond what you can see and touch.
The critical question in any business sale is not simply whether goodwill exists, but whether it is transferable. If customers return because of the business's brand, location, staff, contracts and reputation — and those things will continue after the seller departs — goodwill has real value. If customers buy primarily because of the seller's personal relationships, charm or expertise, and will likely follow the seller rather than the business, then goodwill is weaker and the buyer carries more risk.
Goodwill should be supported by evidence. Buyers should not pay for optimistic claims about "huge potential" or "loyal customer base" without verifying the profit figures, customer retention rates, contract base, reviews and handover arrangements.
Contents
What does goodwill include?
Goodwill is not a single, easily measurable thing. It is a collection of intangible factors that together make a business worth more than its physical contents. Depending on the type of business, goodwill might be made up of any combination of the following:
The business's trading name and how well it is known in the market
Its general reputation for quality, reliability or customer service
Customer loyalty — the tendency of customers to return rather than shop elsewhere
The volume and stability of repeat business
Online reviews and ratings on platforms like Google, Trustpilot or TripAdvisor
The business's physical location, particularly where footfall or accessibility drives trade
The business's phone number, which customers may have saved or memorised
The website and domain name
Social media accounts and following
A Google Business Profile with established reviews and ranking
Supplier relationships and preferential trading terms built over time
Staff knowledge, expertise and customer-facing relationships
Documented internal processes and operational systems
Contracts with customers or clients that represent committed future revenue
Brand recognition in a local area or sector
The business's position in its local or specialist market
Referral networks and word-of-mouth revenue sources
The customer database, where its transfer is lawful and compliant with data protection rules
The expectation that customers will continue to buy after the change of ownership
It is worth noting what goodwill is not. It is not the same as stock or equipment — those are tangible assets. And it is not simply the seller's optimism about what the business might achieve under new ownership. Goodwill is the value of what the business has already built, and what it is reasonable to expect will continue.
Transferable goodwill vs personal goodwill
This distinction is one of the most important in any business sale, and one that buyers sometimes do not explore thoroughly enough.
Transferable goodwill
Transferable goodwill belongs to the business entity, not to the individual owner. It is the goodwill that will continue to exist after the seller leaves — because it is embedded in the business's brand, systems, contracts, staff and physical presence rather than in the seller personally.
Signs that goodwill is genuinely transferable include:
Customers know and return to the business because of its brand or location, not because of who the owner is
Customer relationships are maintained by trained staff who are staying with the business
Contracts are with the business rather than with the seller personally
Processes and systems are documented and can be operated without the seller
The phone number, website, email address and domain name are assets of the business and will transfer
Online reviews are attached to the business listing, not a personal profile
Trade is driven by the location, pricing, product or service quality as much as by the owner's personality
The seller is prepared to support a structured handover
Personal goodwill
Personal goodwill is value that exists because of who the seller is rather than what the business has built. It is the goodwill that walks out of the door with the seller at completion.
Signs that goodwill may be primarily personal include:
Customers buy specifically because of the seller's personal reputation, expertise or relationships
The seller is the main practitioner, technician, chef, adviser or salesperson
No one on the existing staff team can realistically replace what the seller does
Customer relationships are informal, based on personal trust rather than documented agreements
No written contracts exist — repeat business comes from personal loyalty to the owner
The seller's personal brand is the dominant reason for the business's reputation
The seller holds all the key technical knowledge with no documented succession plan
Personal goodwill presents real risk for buyers. If customers follow the seller rather than the business, the buyer may find that the goodwill they paid for disappears quickly after completion. This is why handover arrangements, earn-out structures, non-compete clauses and the seller's involvement post-completion all become particularly important where a high proportion of goodwill is personal.
A buyer may reasonably offer a lower price where goodwill is heavily personal, or structure the deal to include an earn-out — where a portion of the price is paid based on how well the business performs after completion — to share the risk of customer retention with the seller.
How is goodwill valued?
In small business sales, goodwill is not usually valued as a separate line item in isolation. Instead, it is reflected in the overall price offered for the business.
Buyers arrive at a price by considering a combination of factors: the maintainable profit of the business, often referred to as adjusted EBITDA or seller discretionary earnings; the quality and stability of the customer base; the level of recurring or contracted revenue; the strength of the brand and reputation; the location and its commercial importance; the quality and retention of staff; the systems and processes in place; the tangible assets included in the sale; the degree of owner dependency; and general buyer demand for businesses of this type in this market.
The goodwill element of the price is essentially what remains after accounting for the tangible net assets being transferred.
Simplified illustrative example
Equipment and tools (tangible assets) - £40,000
Stock at cost - £15,000
Total tangible asset value - £55,000
Agreed purchase price - £240,000
Implied goodwill and intangible value - £185,000
In this simplified example, the buyer is paying £185,000 more than the value of the physical assets. That premium reflects the maintainable profit, the customer base, the reputation, the systems and all the other intangible factors that make the business worth more than its tangible contents.
In practice, the calculation is more nuanced. The deal structure — whether it is an asset sale or share sale — the treatment of working capital, debt, cash and deferred consideration all affect the final economics. This is why tax and accounting advice should always be part of the valuation process, not an afterthought.
What increases goodwill?
Goodwill is generally stronger — and a buyer will be more willing to pay a premium — where a business has:
A long and consistent trading history
Strong and genuine online reviews across relevant platforms
High customer retention and repeat purchase rates
Formal contracts with customers, clients or suppliers
Recurring or subscription-based revenue that does not depend on constant new sales
A well-established and well-regarded trading location
A recognisable local or sector brand
A stable team of trained staff who manage customer relationships
Low owner dependency — the business runs well without the seller's daily involvement
Documented systems and processes that a new owner can follow
Clear and effective marketing channels
Healthy profit margins
Good supplier relationships and preferential terms
A structured and credible handover plan
A strong website and local search presence
A customer database that can lawfully transfer to the buyer under data protection rules
Documented operational procedures
Each of these factors gives a buyer evidence that the business's success is replicable. A buyer pays more confidently for goodwill when they can see the evidence behind it, rather than having to take the seller's word for it.
What reduces goodwill?
Goodwill is generally weaker — and buyers will be more cautious — where a business has:
Heavy owner dependency, with the seller central to most or all key relationships
No written contracts with customers or clients
Low repeat business or high customer churn
Poor or sparse reviews online
A weak or generic brand that does not stand out
Declining revenue or customer numbers over recent years
A history of customer complaints or unresolved disputes
An unstable or departing team of key staff
Customer data that is disorganised or cannot lawfully transfer
A phone number or website domain that is registered personally to the seller and cannot be transferred
A short remaining lease on the business premises
Heavy customer concentration — where one or two clients represent a disproportionate share of revenue
Franchise or licence restrictions that limit how the buyer can operate
Ongoing disputes with suppliers, landlords or former employees
No meaningful handover plan or seller commitment to supporting transition
The uncomfortable truth is this: goodwill that disappears when the seller leaves is not worth much to a buyer. Sellers who want to achieve a strong price for goodwill need to demonstrate convincingly that the business will continue to perform after they have gone.
How buyers should check goodwill
Buyers should approach goodwill claims with evidence in mind. The seller's assertion that the business has "a loyal customer base and strong repeat trade" is a starting point, not a conclusion. Every claim needs verification.
Key questions a buyer should ask include: Why do customers buy from this business rather than a competitor? Who actually manages the customer relationships day-to-day — the owner, or the staff? What percentage of revenue comes from repeat customers, and how is that measured? What percentage of customers were retained over the past twelve months? Are there formal contracts in place, and if so, what are their terms and renewal dates? How many customers were lost last year, and why? Are the online reviews genuine, recent and attached to the business listing rather than a personal profile? Is the revenue linked to the owner's personal reputation in a way that may not survive their departure? Will the trading name, phone number, website, domain and social accounts transfer to the buyer? Is the customer data properly organised and lawful to transfer? Are key members of staff planning to stay? What handover support is the seller offering, and for how long?
Evidence to request during due diligence
The following types of evidence help buyers assess the quality of goodwill rather than relying on seller representations:
Revenue broken down by customer, showing concentration and stability
Data on repeat customer rates or retention over the past two to three years
A list of contracts, including length, renewal dates and customer names
Screenshots or verified data on online reviews and ratings
Customer churn statistics
Website analytics showing traffic trends and conversion
Evidence of enquiry sources — where new customers come from
CRM or customer database records, handled within data protection rules
Supplier contracts and evidence of established terms
Staff roles, tenure and responsibilities
A proposed handover plan from the seller
Goodwill should be proven by evidence, not assumed on the basis of optimistic claims.
How sellers can strengthen goodwill before sale
Sellers who prepare their business for sale twelve to twenty-four months ahead of the market launch are typically able to achieve a higher price and a smoother sale process. One of the most effective things a seller can do during this period is reduce the business's dependency on them personally — because that is what converts personal goodwill into transferable goodwill.
Practical steps include documenting processes and procedures so that key tasks can be carried out without the seller's involvement, training staff to take on more customer-facing responsibilities, actively moving customer relationships into the business so that clients associate with the brand rather than with the individual, refreshing and updating the business's website and Google Business Profile, working to generate and maintain positive online reviews, formalising verbal customer arrangements into written contracts, organising and cleaning the customer database in a format that can lawfully transfer, addressing any outstanding complaints or disputes, building recurring revenue streams such as maintenance contracts, retainer arrangements or subscription services, tracking and documenting customer retention rates, ensuring the trading name, domain name, phone number and social accounts are owned by the business entity rather than personally by the seller, preparing a realistic customer introduction plan for the buyer, preparing a supplier handover plan, and offering structured post-completion support rather than a hard handover on completion day.
Each of these actions makes the business more demonstrably valuable to a buyer. Goodwill improves when a buyer can see continuity and can form a reasonable belief that the business will perform after the seller leaves.
Tax and accounting issues
Goodwill has real tax and accounting consequences that both buyers and sellers need to take advice on before agreeing a price or deal structure.
For buyers acquiring goodwill as part of an asset purchase, the tax treatment of the amount paid for goodwill depends on factors including when the company first owned the business, whether the intangible asset rules apply, and how the goodwill is allocated within the price. GOV.UK confirms that intangible assets — which include intellectual property and business reputation, including goodwill — are subject to specific Corporation Tax rules that depend on these timing factors and on the nature of the acquiring entity.
For sellers, the proceeds attributable to goodwill may be subject to Capital Gains Tax, and whether Business Asset Disposal Relief is available to reduce the effective rate will depend on whether the specific qualifying conditions are met. The tax treatment can differ significantly between a share sale and an asset sale.
Other tax and accounting considerations where goodwill is relevant include the allocation of the purchase price between different asset categories in an asset sale, the treatment of goodwill on the buyer's balance sheet, the interaction between goodwill and capital allowances, the VAT and transfer of a going concern analysis, and the accounting standards that apply to how goodwill is recorded and amortised.
Do not allocate goodwill casually or without professional input. The way it is described and valued in legal documents can have significant tax consequences for both sides.
Goodwill checklist
Buyer checklist
I understand what specific elements of goodwill are being claimed as part of the price.
I have investigated why customers buy from this business.
I have checked and verified the repeat customer rate.
I have assessed whether customer concentration creates risk.
I have seen and reviewed the contract base.
I have checked the reviews and verified they are genuine and current.
I have assessed the level of owner dependency.
I know which key staff are staying and on what terms.
I know whether the trading name, domain, phone number and social accounts are transferring.
I have considered the data protection implications of customer data transfer.
I have agreed specific handover support with the seller.
I have not paid for vague "potential" without evidence.
Seller checklist
The trading name, domain and social accounts are controlled by and transferable from the business.
Online reviews are strong, genuine and attached to the business.
Customer records are organised, up to date and compliant.
Contracts are in writing and have been gathered for disclosure.
Repeat revenue has been tracked and can be evidenced.
Staff are trained and can operate without the seller's daily involvement.
Key processes are documented.
Steps have been taken to reduce owner dependency.
A credible customer introduction plan has been prepared.
A supplier handover plan has been prepared.
Goodwill claims are backed by evidence, not optimism.
FAQs
Is goodwill the same as profit?
No. Profit is the money a business earns each year. Goodwill is an intangible asset — the accumulated value of reputation, customer loyalty, brand recognition and other non-physical factors that help generate future profit. Goodwill is often expressed as a multiple of annual profit, but they are not the same thing.
Can goodwill be sold as part of a business sale?
Yes. Goodwill is commonly sold as part of a business sale, particularly in an asset purchase where individual assets are listed and transferred. The sale documents should define what is included within the goodwill being sold. In a share sale, goodwill is effectively included in the company being transferred, even if it is not explicitly listed.
What is personal goodwill and why does it matter?
Personal goodwill is the portion of a business's value that depends on the owner's individual reputation, expertise or relationships, rather than on the business itself. It matters because personal goodwill may not transfer to a buyer — if customers leave when the seller leaves, the buyer has paid for something that has disappeared. Buyers should assess how much of the goodwill is genuinely transferable and price accordingly.
Should I pay for goodwill?
Only if it is demonstrably transferable and supported by solid evidence — repeat customers, active contracts, stable staff, strong reviews, and a credible handover plan. Do not pay a premium for optimistic claims that cannot be substantiated through due diligence.
Is goodwill taxable?
Goodwill can have tax consequences for both buyers and sellers. The treatment depends on the deal structure, when the business was established, the nature of the entities involved, and other factors. Both parties should take tax advice before agreeing how goodwill is described and valued in the transaction documents.
Key takeaways
Goodwill is often one of the largest components of a business's purchase price, and one of the most misunderstood. Understanding it properly matters for both sides of the transaction.
For buyers, the core question is whether the goodwill you are paying for will survive the seller's departure. Investigate it thoroughly — check the repeat customer rate, the contract base, the online reviews, the degree of owner dependency, and the handover arrangement. Pay for what is genuinely transferable, not for optimistic stories about what the business could become.
For sellers, the message is equally clear: goodwill is worth more when it is embedded in the business rather than in you personally. The earlier you start building systems, training staff, formalising customer relationships and reducing your own centrality to the operation, the stronger your goodwill position will be when the time comes to sell.
And for both parties: goodwill has tax and accounting implications that need professional advice. Do not treat it as a vague figure in the price negotiations — it is a specific, consequential part of the deal.
Related resources
Important disclaimer
Buy a Business Ltd is a marketplace, not a broker. Information, guides, checklists and examples on this site are for general guidance only and do not constitute legal, tax, financial, investment, lending, valuation, employment, data protection, brokerage or regulated advice.
Buying or selling a business involves risk. You should seek independent professional advice before buying, selling, valuing, financing, negotiating or completing a business purchase.
Sources and useful references
GOV.UK: Corporation Tax when your company sells intangible assets
GOV.UK: Corporation Tax relief on goodwill and relevant assets
GOV.UK: Business Asset Disposal Relief
ICO: Due diligence when sharing data following mergers and acquisitions