Glossary
Goodwill
In accounting terms, the amount a buyer pays for a business over and above the fair value of its identifiable assets and liabilities. In everyday terms, the value of reputation, relationships and know-how.
In plain English
Most of the value in an agency is not on its balance sheet. Client relationships, reputation, team and ways of working are what a buyer is paying for, and in the buyer's accounts the excess over identifiable assets is recorded as goodwill.
For sellers, goodwill is a reminder of where value sits: in things that need to survive the transaction, which is why buyers care so much about retention, founder dependence and client relationships.
Why it matters
Goodwill explains why buyers structure deals to protect what they are buying, through earnouts, retention of key people and warranties.
What to watch for
- The accounting treatment of goodwill is a matter for the buyer and its advisors.
- Sellers can protect goodwill by reducing dependence on individuals and documenting client relationships.
Transaction language and legal treatment depend on the agreement and the jurisdiction. Written by Motion Advisory Partners as general guidance, not legal advice.