calculate the value of a goodwil

According to case law, goodwill simply corresponds to all tangible (goods, equipment, etc.) and intangible (clientele, staff skills, leasehold rights, trade name, etc.) elements assigned to the carrying on a commercial or industrial activity. They are often inseparable, and constitute their value.

Elements composing the goodwill

Goodwill is made up of tangible and intangible elements.

Tangible elements : the so-called tangible elements of a goodwill include everything that is concrete, visible and real. For example: Walls, equipment, furniture, etc…

Intangibles : Intangibles are impossible to physically quantify. For example: The name of the sign, the already affluent clientele, the commercial lease, the sign displayed on the building or the premises…

Pledge of goodwill

The pledging of goodwill is considered as an effective guarantee to the creditor when granting credit to a trader. In addition, it is a contract registered and filed with the registry for registration. Through this, the owner pledges the intangible elements (clientele, goodwill, name, sign and right to the lease) to the creditor. This guarantee gives the latter a right to the property in question in the event of non-reimbursement of the debt.

This pledge can be put in place by court decision, when the situation of the Emailnphonelist risks or when the credit requested is not directly associated with a precisely indicated investment.

How is the sale of a goodwill going?

It is necessary to know in detail what the goodwill includes (tangible and intangible elements) to successfully buy or sell it. It is important to be accompanied by a professional such as a notary to draw up authentic documents and facilitate registration with the tax services and also speed up the procedures for the sale.

Main method of valuation of a goodwill

There are many methods of evaluating a business. The method most commonly used in practice is the method of professional scales, which is based on the turnover generated by the transferor. The seller must give the buyer access to the accounting documents for the last three years. This information allows the acquirer to know what to expect in terms of turnover when activities resume

The method of professional scales consists of evaluating the goodwill by applying a percentage to the turnover generated by the transferor, depending on the nature of the activity. There is no official scale, but some professionals apply their own scales.

However, the determination of the value of a goodwill must necessarily take into account other more qualitative criteria such as:

Materials, tools and goods:  It is important to check the quality of the material and equipment that you wish to acquire as well as the speed of the flow of stocks.

The neighborhood and the environment: When negotiating the price of the business, it is important to take into account the location of the premises. It is also necessary to check the installations of the competitors or the way in which the place is served by transport or the future road and urban developments in the sector. For more precision, it is best to ask for help at the town hall.

Customer management:  It is good to know how the former seller managed his business and his relationship with his customers in order to be able to restore their confidence when resuming the activity, and to maintain the loyalty that already exists.

Once the parties have agreed on a price, it is recommended to sign a memorandum of understanding or a promise to transfer the business before the final signature of the business. However, the signing of a protocol or a promise is not mandatory and the signatory parties can proceed directly to the signing of the contract.

It is recommended to be accompanied by an accountant to help you analyze the accounts before finalizing the purchase.

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