There are two ways of owning a business. You either start it from scratch or buy an existing business and continue running it or even better, improving it.
When you buy an existing business; over and above the value of the assets, the seller is likely to ask for a Goodwill amount for the non tangible value of the business. Even with small businesses, the amount of Goodwill being asked for currently is ridiculously high and can run into hundreds of thousands of dollars and for some even over the million dollar mark. The question then becomes if the Goodwill is worth paying.
My advice is simple: If you want the easy way out then pay the Goodwill or else start something from nothing and make it into a successful business.
There is an argument out there that paying Goodwill is worth it as you start earning profits from day one. But do you really? Remember if you paid Goodwill, you need to recover the investment before you can really tell yourself you are making money. So if you invested say $500,000 as Goodwill then until you can earn it all back in a few year's time you haven't even reached your recovery stage and the longer the recovery stage the better off you would have been if you had started from scratch and even though you may have made losses at start, you may not have taken that long to recover them all back.
So don't be fooled by just following the crowd but do what really works best for you.
BY SURESH RAJANI
Suresh Rajani is the Business Leader at TAX FIRST (An accounting and business advisory firm)
