The FHM Minute

Personal goodwill is the goodwill attributing to the skills, personality, personal reputation and connections of the proprietor. If a business cannot continue or be sold without the proprietor's continue involvement, it is likely that any goodwill is personal. Personal goodwill is typically discounted (fully or partially) in valuing a business.

In the case of CG v SG, it was decided the company should be considered as a "singleton" company. The husband earned ~90% of the income and drew ~95% of the profits. The judge determined the value of the company should be based on net assets and not EBITDA.

The impact could be substantial. For example, the valuation of a hairdressing business, Goldilocks Ltd, based on net assets might be, say, £10,000. For a valuation based on earnings, the equity value might be, say, £100,000. However, if it is determined to be a personal services company the valuation will be based only on net assets, namely £10,000.

If the business has a corporate brand and employees, it is likely to have some corporate goodwill.

In simplistic terms, corporate goodwill is the difference between the net assets of the company and the company market valuation based on its earnings.