determining the value of goodwill of a partnership firm
Generally, the following
factors determine the value of goodwill of a partnership firm:
The profit earning
capacity of the firm determines the value of its goodwill. A firm earning
higher profits and having potential to generate higher profits in future will
have higher value of goodwill.
If the firm is located
in a prominent place which is easily accessible to the customers, it can
attract more customers. Its sales and profit will be higher when compared to a
firm which is not located in a prominent place. Hence, it will have high value
If a firm enjoys good
reputation among the customers and general public for the good quality of its
products or services, the value of goodwill for the firm will be high.
A firm which has carried
on business for several years will have higher reputation among its customers
as it is better known to the customers. Such a firm will have higher earnings
and higher value of goodwill when compared to a new firm.
A firm having efficient
management will earn more profits and the value of its goodwill will be higher
compared to a firm with less efficient managerial personnel.
In the case of business enterprises
having no competition or negligible competition, the value of goodwill will be
There are other factors
which add to the value of goodwill of a business such as popularity of the
proprietor, impressive advertisements and publicity, good relations with