Goodwill is often a confusing term when a business comes up for sale.

The value of a business, or selling price, is based on the cashflow that it generates. The business broker will evaluate the company on calculated cashflow after adjustments are made to the reported income statement.

The sales price less the total assets included in the sale is called goodwill.

If the cashflow generated is too low for the value of assets in a company then the company will just be sold on its asset value, an asset sale.

The following are included in goodwill:

Trade name established
Copyrights, trademarks, patents, formulas, recipes
Established customers
Contracts in place
Trained employees
Operation manual
Software systems developed and installed
Website, phone numbers
Lease for premises
Covenant not to compete

Goodwill value is only generated from the ability of the company to generate sustainable cashflow.