Personal Goodwill is the contribution to an asset’s value from one or more individuals’ knowledge, skills, and relationships. As Personal Goodwill represents the value stemming from an individual’s personal service to the Company, it is considered as an intangible asset owned by an individual and not an asset of the Company. The existence of Personal Goodwill decreases the value of the Company because it increases the Company’s reliance on an individual to achieve reliable and recurring revenue streams.
Diverting business reliance from an individual is crucial to increase Company value. Here are some useful ways you could consider to reduce your Personal Goodwill for maximisation of your Company’s value.
Define your scope of work
Define your scope of work and stick to it. It is always encouraged to utilise your unique skillset for the benefit of the Company. However, simultaneously identify what you do and keep your role well defined. This provides greater opportunities for other employees to learn and ensures that the Company is able to run smoothly without having to rely on a single individual.
Train and promote staff into key decision-making roles
Investment in training staff to strengthen their skills and reduces weak links within the Company. Furthermore, promoting staff into key decision-making roles is another way of reducing Personal Goodwill and diversifying the risks of relying on specific individuals across the organisation. It is also worth taking into consideration removing any tasks away from your role and incorporating it into the roles of other members of the team.
Take more holidays
If you believe that you may be an individual that possesses a considerable amount of Personal Goodwill, take a break, and go on your well-deserved holiday. This reduces the Company’s reliance on you personally and provides opportunity for other employees to step up in your absence, thus allowing opportunities to prove to potential acquirers that the Company can be sustained with existing talent. It also encourages the employees to take ownership of their work which in turn encourages potential acquirers to incorporate this into the price for the purchase of the Company.
Find Out More
Groves & Partners are experts in quantifying Personal Goodwill into the valuation of a Company. As advisors on the sale of businesses and companies, we are particularly experienced in developing strategies to help ensure the Company is aware of viable options in reducing Personal Goodwill for maximisation of Company value.
To find out more about how we can partner with you to achieve success in the sale of your business, contact us on 1300 892 717 (+61 2 7208 7970) or email info@groves.com.au.