The Often-Misunderstood Personal Goodwill And Key Person Discount

While many businesses often possess intangible value such as goodwill, small and medium size businesses in particular can possess what can be described as "personal goodwill". We have all heard this story before; an owner-operated small business is sold, and profits sharply drop thereafter, pushing the business to the brink of bankruptcy. "It hasn't been the same since he or she left" is often heard from customers.

While some goodwill is commercial in nature (brand name, customer lists, an established workforce, know-how, etc.) and transferable to new owners, personal goodwill is the value that stems from the efforts or reputation of a person and quite often, it is a founder of the business in question. The business' reputation and profitability are tightly linked to this person's talents, skills, expertise, personal aura and resourcefulness.