Entrepreneurial Blog

Is there such a concept as “good will” in reality and is it transferable? Why or why not? Give an example.

Goodwill is considered an intangible assets.  It is the value of the business in excess of the price for the assets and accounts receivables.  When a business is purchased with the price in excess of the value of the assets and the value of the accounts receivable then this overage is considered as purchasing the goodwill of the company.  This goodwill includes the relationship the company has with the community, its customers, and its stakeholders.  Goodwill includes the position of that company in the marketplace, customer loyalty, excess business earnings, and the continued expected future economic benefits of the business.  Goodwill is the day to day performance of the business operations that make it successful.  Goodwill can be transferable if the new owners continue to follow the same path as the previous owners and in making changes they always look to the  effect on the community, its customers, and its stakeholders and not only look at how to increase profits at others expense.

Discuss the advantages and disadvantages of buying a business as opposed to starting one from scratch. What two ways can one buy a business and which is preferable ? Why?

The advantages and disadvantage of buying a business as opposed to starting one from scratch include many different items.  The advantages of buying a business are having the past performance as a guide, having readymade inventory, personal, and infrastructure, and an easier way of obtaining a commercial mortgage if you can show a proven track record.  The disadvantages of buying a business include not knowing if the financials are accurate, there may be undisclosed problems with the product or service, and you might have a larger investment if you are paying a premium price for the existing business.  The advantages of starting one from scratch are knowing from the ground up that all legal policies, procedures, and laws have been followed, you can choose your own personnel and you can choose your own products and services and brand them as yours.  The disadvantages of starting your own business from scratch include a more difficult time obtaining a commercial mortgage, trying to decide on a product or service and making the necessary implementations to achieve these products and services.

When you buy a business you have their past performance and history to help you gauge future performance.  You will already have in place the people you need to run the business and many of these people might be beneficial in guaranteeing you keep the same customers especially if there are important business relationships already established.

The two ways one can buy a business is to purchasing the stock in the business or to purchase the assets of the business.  The disadvantage of purchasing the stock could is the taking on of additional liabilities, these liabilities could come up at a later date with no ability for retribution from the previous stock holders.  When you buy the assets of a company you can chose which assets to purchase, these could include inventory, accounts receivables, the building, equipment, and furniture and fixtures.  Other intangible assets you could buy include buying the name of the business, buying the contact list of customers, and buying any branding, trademarks, or patents.  Buying the assets would be preferable in that your potential for liability is reduced.