November 2013 • 15
Business Tip
What is ‘Goodwill’ and How Can I Get Some?
By John H. Nardozzi, CPA, CVA
ONE OF THE MOST IMPORTANT FACTORS IN
making an oilheat or propane business
more valuable is “goodwill.” While you can
easily tally up the value of your delivery
trucks, parts and product inventory, equip-
ment and real estate, these assets can all be
dwarfed by the importance of goodwill.
Yet few dealers fully understand this elu-
sive term.
Goodwill can be defined as the status of
your company in the community. If people
know your company, like your company
and believe you are a good resource, it leads
to customer loyalty, increased margin, and
more reliable revenue stream. What goes
into creating goodwill? Many factors.
INTANGIBLES HOLD THE VALUE
Goodwill is included in the classifica-
tion of assets known as the “intangible
assets.” You can’t see intangible assets, or
hold them in your hand. But in the fuel
delivery business the intangibles combine
to create essential value that sets a business
apart from its competitors. Intangible assets
include a variety of “invisible” – yet very
important – items, including:
• Goodwill
• Customer list
• Reputation of company and people
• Trademarks
• Trade names
• Web presence
• Logos and slogans
• Telephone numbers
• Marketing
materials
• News items
• Location
• Stable
workforce
• Operating
systems
• Patterns
• Designs
• Customer
knowledge
• Licenses
& Permits
• E-mail
addresses
• Credit card
processing
information
• Supply contracts
• Favorable credit rating
• Spill plan compliance
• Covenants not to compete
• Franchise licenses
These intangibles are probably the
largest asset that you own. The stronger
your intangibles, the greater the value of
your company. Intangibles are not usually
on your books because you have created
them over many years of running a good,
reliable business.
Intangible assets play a critical role if
you are selling your business or acquiring
another company. Think about it: the
aging trucks, dusty parts, dilapidated bulk
plant, and outdated office equipment of
that company you want to buy can easily
be replaced. The intangibles of the business
are what you really want.
BENEFICIAL DISTINCTION
Let’s get technical for a moment. Say
you purchase a competitor and acquire his
“hard” assets and intangibles. For tax pur-
poses the intangibles are amortized (written
off) over 15 years. For book purposes,
intangibles are analyzed for “impairment”
and adjusted downward for decreases in
value. This distinction is beneficial to a
company when it is used as a deduction
for taxes, but not on the books, thereby
increasing the bottom line.
When seeking financing, it is a good
idea to obtain a valuation of your customer
list before meeting with the banker. Some
banks use it as part of the collateral base and
lend money on a percentage of the value.
It should be clear that goodwill, along
with other intangible assets, is something
you want for your business – the more the
better. Here are some steps you can take to
build the value of your intangibles.
• Strive to build the best margin you can
• Grow your customer count
• Move accounts from will-call to
automatic delivery
• Get more customers signed up on a
budget
• Get customers on service and
maintenance agreements
• Charge a profitable price for service
and on service agreements
• Increase gallons per drop
• Use routing software to be more
efficient
• Be aggressive on accounts receivable
collection
• Clean up your fleet, yard and your
office
• Clean up your inventory by getting rid
of excess inventory and junk
• Clean up your customer list by
removing inactive customers
• Clean up your books and
records
• Invest in attractive signage on
trucks, tanks and your office
• Build an attractive and
active website
At
first
these
may seem like “little
things” that should
take a back seat
to important opera-
tional issues. But
they are critical in
building goodwill for
your company and
increasing its value,
whether you are plan-
ning to sell, obtain financing,
or simply want to continue to
build a valuable business for the
decades ahead.
