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Why wait to know goodwill’s earning power?

by Julie Perkins

Why do we wait for a sale, merger, or acquisition to understand the “goodwill”, or in accounting terms ‘the value of your intangible assets’, that will add to the future earning power of our company? And more importantly, is there a benefit of knowing its value as part of our everyday company life? 

The goodwill gamechanger 

Linda – a Wyseminds’ growth trailblazer – spent 2020 evolving her product. As the pandemic grew, she knew the world was changing and to continue with her vision, her product needed to change too. After supporting her to clarify purpose and free her business from growth hurdles, Linda was able to create a new connection with her customers by making her product more relevant to their needs in the unfolding new world. 

The right value at the right time: For Linda’s company, it was about adding flexible options to give her product more relevancy – bringing in her team and extended enterprise to support her customers through changing times. With goodwill echoing throughout her business, and in such challenging times, a new kind of trust emerged. And the introduction of this intangible, yet powerful force, was a pivotal moment that ultimately led to a high (and unexpected) company valuation.

But that was to come eight months later when she agreed to a joint venture deal, which recognised the true value of her actions. Yes, she felt the short term effect with new connections, more in depth customer relationships, etc. However, the improved goodwill and her company’s future earning power was not given a value until the moment they shook hands on a new partnership.

“I started with my top offer to create a new partnership, just to test the water,” explains Linda. “Working with a financial consultant we had projected my business on good, better, and best case scenarios. I was in search of the right partnership that could take me into the next growth era, and the offer was accepted.” After three years of hard work, she relished in this moment of fulfilment and pride. I love Linda’s surprise about her investor’s view on the future potential of her business. 

But should business-owners, entrepreneurs at heart, be that surprised if they get their highest valuation? What if our performance review and strategic discussions started valuing (and placing a value on) goodwill; understanding our intangible assets more to know where to invest as a way to fuel future growth? Why wait until the end of a growth era, as Linda did, to reap the benefits of clearer insight?

From consumer expectation to demand 

These are still disruptive times. Individuals have re-evalauted what’s important to them, meaning consumers have changed irrevocably as they increasingly look to the social behaviour of businesses and brands. Customers are no longer connecting just on what you provide, they now look to how you act in providing it – and how a company responds should no longer be just about increasing productivity or simply doing and owning more. Previously they may have expected you to positively impact the world in some manner; but now, following 2020, consumers are insisting that you play a greater, more valuable role beyond your bottom line, beyond ESG strategies, and into communities.

In other words: how a company treats all those that support their success,not just their customer, plays an additional leading role in the loyalty of consumers going forward. According to the case for stakeholder capitalism (Mckinsey Nov 2020), “Consumers and society at large are expecting more from business. Embracing these responsibilities can help shareholders, too” (as Linda’s story of surprise at the value of her shares demonstrates).

Turning new demands into prosperity 

These increasing demands could seem challenging for small and medium business owners, however they are also catalysts for opportunity – and potentially a new chapter of prosperity. To grab these new opportunities, the essential question to ask is: Who are our stakeholders and how do we serve them? 

It is from here that we could begin to reposition the role of the organisation in the community differently. A broader view of your audience is an important first step and from here an understanding how you serve them through customer satisfaction and employee fulfilment. For small and medium businesses to embrace a more holistic, balanced approach to growth in our changed world, perhaps impact analysis needs to change too. 

Transparency towards your total community

Ordinary intangible assets include things like patents, copyright, licences and brand recognition. Yet, surely now, knowing more of the direction that successful companies took during the pandemic, how they were able to respond, pivoting and evolving to connect to their customer needs quicker and smarter than many others who eventually disappeared, we should evolve our understanding of these “super” intangible assets.  By understanding and knowing their value, as much as we would if they were critical tangible assets, we should be making their measure a key part of our strategic and performance reviews, to understand how hard they are working (like any other asset – such as inventory, manufacturing plants, resources, etc).

The new consumer demands for companies to do the right thing include:

  • the way you treat people,
  • the way you work and put back as much as you take, 
  • your ability to respect and serve changing needs, and 
  • how you use them for positive change. 

 

It’s this holistic view of your total ecosystem – how all the parts come together to create a unified, authentic impact – that brings new strength, that very same strength that those companies who excelled in the pandemic could draw upon. 

Measuring the collective impact of these “super valued” assets, how they unify to drive greater future performance and profits under all conditions, means we can use it to assure more to our customer. Knowing the value of our goodwill as part of how we run our companies today has now a clear strategic benefit.

The value of knowledge

So, what if Linda had known the value of her goodwill before the moment she shook hands? What more could it have bought her company during her growth journey? 

Understanding the value of her intangible assets would have enabled her to see clearly the following: the effectiveness of how stakeholders are unifying together to create value, which areas to invest in more to improve (or disconnect with), and which aspects of the business are generating the greatest return from a goodwill perspective. Fewer surprises, but arguably far greater growth potential.


Take the Wyseway growth evaluation and estimate your growth potential
At Wyseminds, we measure how your intangible assets align together, and how hard they are working together to make the change your company exists for. This is the moment when all stakeholders can see and feel true authenticity and make it a part of the decision to connect with you. If you would like to understand more about the power of your goodwill, take the Wyseminds growth evaluation with newly added P&L growth estimate.

Take the Wyseway growth evaluation