Factors affecting Goodwill
Factors affecting Goodwill can be internal factors, which are within the company, or external factors, which are a part of the economic environment in which the company operates. All these factors are discussed as under : –
- Efficient Management: Efficient management, manages the resources in the company in a manner which leads to higher profits in business . This is achieved by fulfilling the needs of customers, which increases the goodwill of the firm.
- Location: If the business is located at a favorable location, then it has a higher value of goodwill as compared to a business which is located at an unfavorable location.
- Quality of goods and services: If the firm provides best quality of goods and services to its customers then it has a higher goodwill than other firms.
- Contracts: If the firm has favourable contracts for the sale of its products and purchase of its raw material, then the firm enjoys a higher goodwill.
- Access to supplies: In case where the supplies of raw materials are difficult to secure, there will be a higher goodwill of the firm which has easy access to raw material.
- After-sale services to the customers – customers tend to purchase from the company which provides better after Sales Service. The quality of service increasing the Goodwill of the company thereby increasing the number of customers who purchased from the company.
- Patents owned by the firm – If the company goes certain patents, it is able to exclude competition, and provide Certain exclusive products/services to the customers which increases the Goodwill of the company.
- Effective advertisement – It creates brand awareness, Increases the Goodwill of the company Good Customer relation- A company which has good relationships with its customers, tend to bring the customers back to them/ generates referrals, which increases the value of goodwill of the company
- Goodwill Meaning
- Types of Goodwill
- Methods of valuation of goodwill
- Weighted Average Profit Method
- Goodwill adjustment when profit sharing ratio changes
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