Glossary

Goodwill

The intangible value of a business above the fair market value of its tangible assets — brand, customer base, trained workforce, location, reputation, systems.

What it is

Goodwill = Purchase price − Fair market value of tangible assets (equipment, inventory, real estate if owned).

If you pay $1M for a business with $400K of equipment and $100K of inventory (and no real estate), the goodwill component is $500K. You're paying $500K for the intangible value — the brand, the customer base, the trained workforce, the systems, the reputation, the lease, the licenses.

Why it matters

• Tax treatment. Goodwill is typically amortized over 15 years for federal tax purposes (Section 197). This can produce a meaningful tax shield for the buyer — review with a CPA.
• SBA 7(a) requirements. SBA 7(a) loans for acquisitions with a high goodwill component typically require a larger buyer equity injection (10% minimum, often 15–20% for goodwill-heavy deals).
• Asset purchase vs. entity purchase. In an asset purchase, the buyer gets a step-up in basis on the goodwill (amortizable). In an entity purchase, the goodwill stays on the seller's historical books — no step-up. Review with a CPA.
• Purchase price allocation. The allocation of the purchase price among tangible assets, inventory, and goodwill is negotiated between buyer and seller — and has real tax consequences for both. Each party's incentive differs.

What goodwill is NOT

• Not "blue sky" — goodwill is a real, measurable component of the purchase price.
• Not a euphemism for "overpayment" — though paying too much for goodwill is a common buyer mistake.
• Not the same as brand value alone — goodwill also includes customer relationships, workforce, systems, licenses, and lease value.

How to diligence goodwill

• Customer base stability. Recurring customer rate, customer concentration, average tenure.
• Workforce stability. Key employee tenure, retention through transition.
• Brand and reputation. Online reviews, industry reputation, brand awareness in the target market.
• Systems and processes. Documented SOPs, POS data quality, financial reporting quality.
• Lease value. A below-market lease in a desirable location is a real intangible asset — but only for the remaining lease term.
• License value. Transferable licenses (SLA, OCFS, DMV, etc.) are real intangible assets — verify transferability before close.

New York-specific notes

• NYS follows federal Section 197 amortization for goodwill — no separate NYS adjustment (verify with a CPA).
• NYC businesses may have higher goodwill components because of location value (subway-adjacent, foot-traffic-rich) — model the post-renewal rent to verify the goodwill isn't overstated.
• For licensed NYS businesses (liquor stores, restaurants, childcare, etc.), the license itself contributes to goodwill — but only if it's transferable. An un-transferable license destroys goodwill value.

Where to go next

• SDE vs EBITDA guide — how multiples produce goodwill
• Affordability calculator — SBA equity injection for goodwill-heavy deals
• Working capital definition
• Due diligence checklist