Business goodwill valuation

What goodwill actually is

Goodwill is often described as whatever a buyer pays above net assets. That is a result, not an explanation. A valuer's definition is more useful: goodwill is the value of a business's ability to earn more than a fair return on the assets you could list and sell one by one, such as plant, vehicles, fit-out, stock and working capital.

The surplus comes from things no register records: customers who come back unprompted, a name people search for, referral relationships, a trained team, systems that keep work flowing without the owner.

So goodwill can be nil. If a business earns no more than a reasonable return on its equipment and stock once the owner is paid a proper wage, a buyer has no reason to pay above asset value. Plenty of busy, profitable businesses are in that position, and it is better to know before a sale than during one.

Personal goodwill and business goodwill

This distinction moves the number most. Business goodwill stays when the owner leaves: the brand, the site, recurring contracts, the customer database, the team and the way work gets done. Personal goodwill belongs to a person: the patients who book only with one dentist, the builder who wins work because developers know him, the accountant whose clients would follow her across town.

A buyer pays for what transfers. If much of the custom would walk out with the vendor, the earnings a buyer can rely on fall, and so does the goodwill. That is why two businesses with identical profit can carry very different goodwill.

How a valuer tests it

• Who holds each client relationship: the owner, a staff member or the business itself.
• Whether revenue is contracted or recurring, or won fresh each time on the owner's reputation.
• What happens to bookings when the owner is away for a month.
• Whether licences, supplier terms or referral arrangements sit in the owner's name.
• Whether a handover period and a restraint from the vendor would let relationships pass across.

Valuers separate the two to work out what a buyer would pay. Tax law looks at it differently: the ATO's view is that personal skills and reputation are a source of a business's goodwill, not a separate CGT asset. How that applies to you is a question for your tax adviser.

When a separate goodwill figure is needed

Usually goodwill is valued as part of the whole business. A separate figure matters when someone needs to know how the total splits.

Selling the business as assets

An asset sale contract usually allocates the price across goodwill, plant, stock and other items. Tax on each class can be worked out differently, and some states charge transfer duty on business assets, so the split matters to both sides. A documented goodwill value gives it a basis. See business sale valuation.

A capital gain on goodwill

Goodwill is a CGT asset, and when a sole trader, partnership or trust sells a business it is often where most of the gain sits. Its market value can also count towards the maximum net asset value test for the small business CGT concessions. Your tax adviser decides whether they apply; see small business CGT concessions and valuations.

The 30 June 2027 CGT changes

Where an Australian resident sole trader, a partnership of resident individuals or a trust with an eligible beneficiary runs the business, its goodwill is generally one of the assets treated as sold just before 1 July 2027 and bought back, by default at market value. A valuation is one way to work out that amount; the law also allows for a Government apportioning method, but that method is still a draft (released for consultation in August 2026, not yet final). A company's own post-1985 goodwill is not caught by that rule, but its shares, when held by individuals or trusts, may be, and share value usually reflects the goodwill inside. Your tax adviser decides. A valuation as at 30 June 2027 is prepared after that date, once your records to 30 June 2027 are available. You can book your place now.

Restructures

Moving a business from a sole trader or partnership into a company or trust moves the goodwill with it. Related-party transfers can bring market value rules into play, and rollovers have their own conditions. Your accountant designs the structure; we value the goodwill at the date it moves. See business restructuring valuation.

Partners joining or leaving a practice

In medical, dental, accounting and legal practices, an incoming partner often buys into goodwill and an outgoing partner is paid out. A valuation tests whether an old formula in the partnership agreement still gives a sensible answer, or supplies the figure where the agreement calls for market value.

How goodwill is valued

Two methods do most of the work. Both start from maintainable earnings: the profit the business can reliably keep making, after a market wage for each working owner and without one-off or personal costs.

Capitalised earnings less net tangible assets

Value the whole business by capitalising maintainable earnings at a multiple that reflects risk, then deduct the market value of the identifiable net assets it uses. What remains is goodwill. It is the usual approach for small and medium businesses because it mirrors how buyers price them.

Excess earnings

Work out the return an investor would want on the money tied up in equipment, stock and working capital, and deduct it from maintainable earnings. The excess is the profit goodwill produces, capitalised at a rate reflecting how long it is likely to last. It suits asset-heavy businesses, such as manufacturers and transport operators, because the return on assets is set out openly.

Rules of thumb and sale evidence are cross-checks, never the answer alone. See business valuation methods.

What we need from you

• Financial statements and tax returns for the last three years, plus year-to-date management accounts.
• The asset register or depreciation schedule, and the premises lease.
• Revenue by major customer, contract or practitioner.
• A staff list with roles and length of service.
• Any partnership agreement, shareholders agreement or draft sale contract.

Documents come only through the secure upload link on your matter, never by email or this website. See what information is needed.

Fees and timing

We charge one fixed fee of $999 + GST for a full valuation report on one business or ownership interest with annual turnover under $10 million, including a goodwill valuation. Delivery is 2 business days for turnover under $2 million and 3 business days for turnover $2 million to $10 million. Delivery time starts once payment and all required information have been received, and pauses while we wait for answers to our questions or your signed representation letter. The fixed fee applies once we confirm the interest, purpose, structure and records fit the fixed-fee scope. Anything outside it is quoted in writing before we start.

Groups, several businesses or practices with many partners: Quoted in writing. Each additional valuation date: $495 + GST. Each additional entity or interest: $795 + GST. Fixed fee, confirmed in writing before we start. No hourly billing and no surprises.

A limited-scope calculation is not a full valuation report, and we say which one you are getting before you engage us. Every report is prepared and signed by a suitably qualified business valuer at Valuation Group. Guided by APES 225 Valuation Services. A report for a sale, tax or a restructure is not a court expert report; disputes are a separate engagement with their own fee.