Factors affecting the value of goodwill :

Goodwill relates to the profit earning capacity of the firm. Thus, the goodwill of a firm is affected by the following factors.

The factors are:

1. Quality: If the firm enjoys good reputation for the quality of its products, there will be a ready sale and the value of goodwill, therefore, will be high.

2. Location: If the business is located in a prominent place, its value will be more.

3. Efficient management : If the management is capable, the firm will earn more profits and that will raise the firm’s value.

4. Competition: When there is no competition or competition is negligible , the value of those businesses will be high.

5. Advantage of patents : Possession of trade marks, patents or copyrights will increase the firm’s value.

6. Time : A business establishes reputation in course of time which is running for long period on profitable line.

7. Customers’ attitude : The type of customers which a firm has is important. If the firm has more customers, the value will be high.

8. Nature of business : A business having a stable demand is able to earn more profit and therefore has more goodwill.