Business Valuation and Goodwill

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When a privately owned property is acquired by the government for a public project or use, the owner of that business can claim compensation for loss of business goodwill. This right also extends to cases of inverse condemnation, involving a cause-and-effect dynamic between the public project and damage to the privately-owned property.

Compensation for the loss of goodwill is intended to provide payment for the losses that occur when a business is forced to move and relinquish the benefits of its prior location. This includes compensation for the loss of patronage and expenses incurred to prevent the loss of patronage. As such, the process of valuing a business is often rather complex.

Defining Goodwill

In the state of California, goodwill is defined as the intangible assets that a business accrues as a result of its location, reputation, skill or quality, and other circumstances that result in the probable retention of old patrons or the acquisition of new patrons.

Examples of goodwill items that contribute towards the value of a business include:

  • Location, level of accessibility, and visibility
  • Positive reputation
  • Brand recognition
  • Loyal customers
  • Copyrights and trademarks
  • Royalty agreements
  • Licenses
  • Experienced and skilled staff
  • Specialized service or product

How to Prove Business Goodwill

Business owners can present evidence of lost goodwill after proving to the court that they are entitled to compensation for the loss of goodwill. This process will involve showing that the government’s acquisition of the business caused the loss of goodwill and that this loss cannot be reasonably avoided.

Since goodwill is not comprised of tangible assets, proving entitlement to compensation for the loss of it can be difficult. To effectively navigate this process, it is critical that you hire an attorney who is skilled in handling these types of eminent domain or inverse condemnation cases.

How Goodwill is Valued

Calculating a business’s lost goodwill is challenging since no universal method exists for determining its value. That said, there are some methods for valuation that are recognized:

  • Capitalization of income or profits
  • Excess income
  • The cost of creating a new business that has yet to gain excess profits
  • Present value of anticipated profits
  • Market analysis
  • Other methods that appear to be just and equitable

Eminent Domain Attorneys in California

For nearly three decades, the California eminent domain attorneys at Allen, Semelsberger & Kaelin, LLP have been protecting our clients’ properties, companies, and best interests in a variety of eminent domain cases. No matter how complex your case is, our experienced and skilled legal team will ensure you receive the highest compensation possible for your property.

For the legal representation you deserve, call us today at (888) 998-2031 to schedule a free initial case evaluation with a knowledgeable member of our team.

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