Business Valuation and Goodwill

In eminent domain cases, where the government acquires privately owned real property for a public project or use, the owner of a business conducted on the real property the government seeks to acquire may claim "compensation for loss of business goodwill." The right to recover lost goodwill extends to inverse condemnation cases, which involves a cause-and-effect relationship between a public project and damage to privately owned real property, without a formal exercise of eminent domain by a government agency.

The purpose of compensating a business owner for loss of goodwill is to provide payment for the kinds of losses which typically occur when an ongoing business is forced to move and give up the benefits of its former location. It includes not only compensation for lost patronage itself, but also for expenses reasonably incurred in an effort to prevent a loss of patronage. Valuing a business can be complicated.

What Is "Goodwill?"

Tangible assets have physical form, such as equipment, property, improvements, and inventory. Goodwill, on the other hand, is an intangible asset defined by California law as the benefits that accrue to a business as a result of its location, reputation for dependability, skill or quality, and any other circumstances resulting in probable retention of old or acquisition of new patronage.

Examples of Goodwill Items

Peterson Law Group can help maximize the value of business goodwill. The following items may be argued as comprising business goodwill and could contribute towards the value of a business:

  • Loyal and repeat customers.
  • Positive reputation.
  • Highly experienced and skilled staff.
  • Licenses.
  • Royalty agreements.
  • Specialized field, service, or product.
  • Copyrights and trademarks.
  • Brand recognition.
  • Location, accessibility, and visibility.

Proving Business Goodwill in Los Angeles

A business owner may be able to present evidence of lost goodwill to a jury after the business owner proves, to the court's satisfaction, that the business owner is entitled to compensation for loss of goodwill. This includes making a factual showing that the government's acquisition of the business caused the loss of goodwill, the loss cannot be reasonably prevented, and that the compensation will not be duplicated or included in relocation assistance.

Proving that a business is entitled to compensation for loss of goodwill, then valuing the business goodwill, can be a difficult and complicated process, especially given that "goodwill" is not comprised of any tangible assets and is often difficult to firmly define. It is imperative that a business owner seek an experienced attorney that can help maximize the value of the business' goodwill in eminent domain and inverse condemnation cases.

Methods of Valuing Goodwill

Calculating a number to present as the business' lost goodwill can be complicated, especially since there is not an exclusive way to value goodwill. The following methods of valuation have been recognized:

  • Market analysis.
  • Excess income.
  • Capitalization of profits or income.
  • Present value of anticipated profits.
  • "Cost to create," when a new business has not yet gained excess profits.
  • Any other method that appears to be "just and equitable."

Why You Should Choose Peterson Law Group

The challenges of proving and valuing business goodwill can be overwhelming and intimidating, but we are trial attorneys with the experience, knowledge, persistence, and creativity needed to take on your case. We have a strong track record of success and we will fight tirelessly to ensure that you achieve the best possible outcome for your case. Contact our legal team to learn more about your rights and options.