Goodwill: what it is, and why it's so hard to value

Ask two accountants what a private business's goodwill is worth and you will often get two numbers. That is not a failure of the profession. Goodwill is the part of a business that has no market price of its own.

What goodwill actually is

Goodwill is the difference between what a business is worth as a going concern and the value of its identifiable net assets. It is not a thing you can point at. It is the sum of the reasons customers keep coming back: reputation, recurring revenue, location, trained staff, systems, brand and market position.

Accounting standards only allow goodwill onto the balance sheet when a business is acquired. For most private companies that means the largest component of their value has never appeared in the accounts at all — which is exactly why it is so often misjudged.

Why it resists a formula

Identifiable assets have markets. A machine, a vehicle, a parcel of stock — each has a price you can look up. Goodwill does not. Its value depends on the durability of what sits behind it. A customer base that has renewed for a decade is worth more than the same revenue won last year, and no formula reads that difference off a profit and loss statement.

Nor is goodwill stable. It can be built, and it can quietly erode while the revenue still looks fine — a key client negotiating harder, a market getting more competitive, a founder getting closer to retirement.

How a valuer pins it down

• Earnings quality: separating recurring revenue from one-off work, and testing the trend rather than treating the latest year as gospel.
• Customer concentration and retention: how much of the value rests on relationships that could walk out of the door.
• Owner dependence: what the business is worth without the person who built it.
• Comparables: what similar businesses actually transact for, adjusted for size, growth and risk.
• A capitalisation rate that reflects all of the above, applied to maintainable earnings.

The result is still a judgement — but a supported one. Each assumption is written down, tested against evidence and signed by an independent valuer. That is the difference between a figure that settles an argument and a figure that starts one.

Why this matters for the 2027 reset

The transition pins a market value to 30 June 2027. For most private businesses goodwill is the largest single part of that value, and the part most likely to be questioned later. It is also the part where a valuer's judgement, rather than a formula, does the work.

For an early read on where your value sits, begin with the free indicative range.