The Goodwill Factor in a Business Acquisition and How to Use It to Close Bigger, Better Deals

This article appeared in the FEBRUARY 2024 issue of ATTAIN. Subscribe now to be on the cutting edge of business and wealth-making ideas and technologies.

Walk into any serious business deal and you’ll find one number that raises eyebrows—the difference between what a company is worth on paper and what the buyer is actually willing to pay.

That number is goodwill.

It appears on the closing documents as part of the purchase price. It lands on the buyer’s balance sheet as an intangible asset. And in many deals, it becomes the biggest part of the valuation.

But here’s the problem:

• Most buyers don’t understand it.
• Most sellers don’t know how to defend it.
• And most brokers bury it under buzzwords.

Goodwill is real. It’s powerful. And it can make or break a deal—depending on how it’s handled.

The Definition of Goodwill in a Business Acquisition

In technical terms, goodwill is the amount a buyer pays above the fair market value of a company’s net identifiable assets.

Let’s say a business has:

• $200,000 in equipment
• $100,000 in inventory
• $150,000 in receivables
• $50,000 in liabilities

Net identifiable assets = $400,000

If the buyer pays $750,000, then $350,000 is goodwill.

This amount gets recorded as an intangible asset on the buyer’s books. And unlike equipment or buildings, it can’t be depreciated quickly or sold if the business tanks.

It represents the invisible:

• Brand recognition
• Customer loyalty
• Operating systems
• Workforce knowledge
• Supplier relationships
• Contracts
• Processes
• Location advantages
• Reputation

Goodwill is what keeps the cash flowing after the keys are handed over.

Why Goodwill Matters—and Why It Changes the Deal

Goodwill tells the truth about a business’s actual value in the market.

When a buyer agrees to pay above asset value, they’re not paying for forklifts or fixtures. They’re paying for cash flow reliability. They’re paying for a business that keeps performing without needing to be rebuilt from scratch.

Goodwill also signals this: The business works.

Customers return.

Vendors cooperate.

Staff stick around.

The market responds.

And in a real deal, that’s what the buyer is buying.

The Problem: You Can’t Borrow Against Goodwill

Banks like collateral.

They’ll lend against real estate, inventory, vehicles, and equipment.

But goodwill?

That’s an intangible.

It can’t be repossessed.

It can’t be sold at auction.

So when goodwill makes up a large portion of the deal price, traditional financing hits a wall.

This is where deal structure matters. Buyers who understand goodwill build the stack differently.

How to Finance a Deal Heavy in Goodwill

If you’re buying a business where goodwill is half—or more—of the total price, here’s how to make it work:

1.  Seller Financing

Ask the seller to carry part of the note. This reduces the need for bank collateral and aligns the seller’s interest in the business’s continued success. In goodwill-heavy deals, this is standard.

2.  SBA 7(a) Loans

SBA-backed loans allow for partial financing of goodwill, especially when the deal involves strong cash flow and buyer experience. Banks hesitate without SBA backing. SBA changes the math.

3.  Earn-Outs

Tie part of the price to future performance. This reduces risk and shifts goodwill value into measurable post-closing results. Sellers often agree when they believe in the business.

4.  Equity Partners

Bring in silent investors or operating partners. They care more about returns than collateral. If the business is stable, goodwill becomes an acceptable part of the premium.

5.  Creative Deal Terms

Use holdbacks, milestone payments, or seller consulting agreements to spread risk. This keeps goodwill from becoming a dead-weight number—and turns it into an operational asset.

How Sellers Can Maximize Goodwill (and Justify It)

If you’re the seller, your goal is to make the goodwill undeniable. Buyers will pay for it if they can see it and believe it.

Here’s what matters:

• Documented customer retention
• Contract history
• Employee tenure
• Vendor relationships
• Process documentation
• Brand search traffic
• Name recognition
• Testimonials
• Referral chains

The more proof of performance, the more leverage you hold.

Buyers don’t want to hear about potential. They want to see past delivery—and the systems that guarantee it keeps going.

Goodwill grows when a business performs without its founder being in the room.

What Happens to Goodwill After the Sale

After closing, goodwill stays on the books as a long-term asset. It’s not amortized for tax purposes unless the deal was an asset sale (and even then, it’s stretched over 15 years).

But the true question is this: Will the goodwill keep earning?

If the transition is handled poorly, it won’t.

If the team leaves, customers vanish, and operations collapse, that goodwill disappears—even though the buyer already paid for it.

So part of buying goodwill is buying continuity.

Transition planning matters.

Employee retention matters.

Customer communication matters.

Because the only thing worse than no goodwill—

is goodwill that evaporates after the check clears.

The Real Purpose of Goodwill in a Deal

Goodwill shows whether a business has built something real.

• It confirms that the cash flow isn’t just a number. It’s a system.
• It allows a seller to earn more.
• It forces a buyer to think deeper.
• It demands that lenders get creative.

And it rewards owners who built more than inventory.

When structured right, goodwill becomes the bridge between asset value and true wealth.

That’s the real story.

That’s goodwill in a business deal.

And that’s how you use it.