Enterprise goodwill is the value generated from some of the factors mentioned above that are owned by the business. Note: Not to be confused with intellectual property. It focuses on the value owned by the company, as opposed to the individual.

Alternatively, personal goodwill is value owned by an individual that either owns or is employed by a company. It is more common within companies that require specific credentials, experience and qualifications (e.g., dental practices, professional service organizations, general contractors, owner/operated companies, etc.) but is also in present in the form of customer relationships, key employees (sales, operations, etc.) or specialized knowledge/skills held by an employee.

When determining the nature of goodwill (enterprise vs. personal), a good rule of thumb is to ask yourself – “If this person were to leave the business, what would happen?”

Why is this important? Personal goodwill has very little, if any, value in the eyes of the buyer, and more importantly, lending institutions, insurance and any other stakeholder with a financial interest in the sale of the company. And for obvious reasons, why would a company pay for value that cannot be transferred into the business?

And to clarify, the presence of personal goodwill, regardless of the form, is not a “deal killer.” And in many cases, it won’t dilute the value of a company, so long as there is an agreed upon plan in place for the transition of personal goodwill into enterprise goodwill. Predominantly in the form of an earnout, i.e., a specified amount of time (months, years, etc.) that the owners of a company are contractually obligated to assist with the transition of ownership after the sale.