What Is Locational Goodwill?
Beyond $$, your business has value that can be attributed to its intangible assets. That is, there are aspects of a business such as reputation, branding and customer loyalty which together form value for your business.
When selling your business, a key consideration that many of your prospective purchasers will consider is the location of your business. A business in an ideal location will benefit in receiving greater foot traffic, increased clientele and greater marketability due to convenience. All these benefits are what is known as locational goodwill and provide value to your business.
When selling your business, it is important that you give due consideration to the value of your locational goodwill when negotiating the price that you are willing to sell for.
Key Locational Goodwill Considerations
The success of most businesses is determined in part by the location of the business. For certain businesses, such as local convenience stores, most people will tend to go to the closest location and as such, those businesses have value in the convenience and accessibility that they are able to provide to nearby customers.
Various factors can affect the value of your locational goodwill, and that is why when selling a business most vendors should consider the following:
- The term remaining in your current lease – There is value in securing a location for long period of time, including whether there are any options to extend the term.
- Any visibility and/or access issues to your business – Fixing these issues can increase the reach of your business to potential new customers.
- Any possible interruption by major road works or other mandated works – You may consider delaying the sale of your business to maximise the value of your sale.
- Demolition and relocation provisions.
- Future rent increases.
Understanding the benefit of the location of your business can be a vital asset to maximising your reach and ability to grow your business. Locational goodwill forms a key part of your business and should be given due consideration when determining the overall value of your business.
If you require assistance with sale of your business, Adams & Partners Business Law Team can assist you with your unique circumstances. Contact us on (02) 4721 6200.
Written by Shalvin Kumar.