correct price is what you were prepared to pay and what the Seller is prepared to receive, based on the full information. The goodwill would be defined as the difference between the assets and the future profits that will be generated from the assets. How much would you pay now for the expectation of these profits? There should be a maximum price, although other items matter too, especially with no money down. The value today of any business, in theory anyway, is the discounted sum of the future cash flows being generated. But a big mistake is paying for the potential that you are adding. It’s very easy to run away and to overvalue potential. Even if you’re putting little or no money down, you don’t want to just buy a job; you want to buy a business that will grow, thrive and give you a return at the end. Especially if you’re investing in fashionable technologies, you may get overexcited about the potential, ignoring the hard work that you will have to do to make that potential happen. A great client of mine once described an ideal business to buy and I completely agree with his summary. He said if it’s a sort of business where you are sitting at a dinner party boasting about, feeling amazing about, thinking you rule the world because it’s so up-to-date and fashionable yet it’s probably a business that is not making much money. The businesses that really succeed are the ones nobody really talks about, the ones that just produce a good sustainable growing profit each year in an unexciting market. I think this advice is liquid gold. Goodwill does exist and this may be based on things like the value of a company’s brand name, its solid customer base, its good customer relations, good employee relations, and proprietary technology which allows it to make more profits than its competitors, or provide things that these competitors cannot provide.
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