Ask LH: Do I Have To Sell The Goodwill With My Business?

Image: iStock

Hi Lifehacker, My fiancé and her parents are looking to sell their beauty salon so they can open a coffee shop. To keep an income stream, they want to continue working in beauty from home with existing customers. Is this possible or are they subject to some form of goodwill when it comes to the clientele of the current business? Thanks, Good Will Hunting

Pampered customer picture from Shutterstock

Dear Matt And/Or Ben,

For those not in the know, business goodwill refers to the intangible assets that contribute to a company's overall value - stuff like brand recognition, installed customer base and intellectual capital. This is separate from a company's net assets which include tangible resources like equipment and property.

When selling a business, the particulars surrounding goodwill need to be explicitly addressed in the handover contract. Providing an extensive customer database will boost the business' overall value - but you need to actually deliver the promised clientele.

While it's expected that a percentage of customers will be lost during the transition, you can't put a valuation on existing clients and then actively poach them from the new owners. That's just not cricket.

You don't have to hand over customer details when selling a business, but you'll obviously get less money this way. One possible option is to concentrate on intangible assets other than the customer base. For example, is the beauty salon in a well-trafficked location near public transport? If so, you can factor this into the overall value of your business and still keep the bulk of your clients.

In any event, beauty salons are known for forging strong customer relationships at the human level; their loyalties lie with the person servicing them rather than the business or brand. As such, the value of your existing clientele probably isn't worth much to the new owners anyway.

If any readers have experience in this area, please share your tips with GWH in the comments section below.

Cheers Lifehacker

Have a question you want to put to Ask Lifehacker? Send it using our contact form.


Comments

    But isn't selling customer information as outlined above against law without the consent of the customers? Or is that for the OAIC to decide?

      When a business is sold with customer records they don't have to worry about privacy guidelines because you have your information to the business not the owners. So as long at that info stays with the business that's ok. You can't sell the records on their own.

          @greenlego
          You also need to read the next paragraph
          However, a sale of a whole business is not ‘trading in personal information’, and the business will not have to comply with the Privacy Act, if the sale involves a change of ownership, or a sale of shares, of the business but the personal information is kept within the business. In this case, the business may have new shareholders, but the business itself has not given the personal information to anyone outside the business.

          So by that, your fiance and her parents would need the consent of the individuals concerned to transfer their personal information out of the business into the new business (run from your fiance and her parents home).

          Confusing, better get a lawyer son, better get a real good one.

          The very next paragraph in the article you linked to answers your question: "However, a sale of a whole business is not ‘trading in personal information’, and the business will not have to comply with the Privacy Act, if the sale involves a change of ownership, or a sale of shares, of the business but the personal information is kept within the business."

          You probably should have read the whole thing instead of picking bits you liked.

          However, a sale of a whole business is not ‘trading in personal information’, and the business will not have to comply with the Privacy Act, if the sale involves a change of ownership, or a sale of shares, of the business but the personal information is kept within the business. 

    It would be normal to sell such a business with goodwill, customer lists, brands etc PLUS a non-compete / non-solicit clause.

    If you want to sell the business without one, and then subsquently contact all your regular clients advising them of your new premises, the price you are likely to fetch for the business will be lower.

    Depends on the extent to which the goodwill is based on the staff, the owner, the location etc. If people are loyal to the owner then this is “personal goodwill”. Such as situation could result in clients following the owner. But if the business relies mostly on its location then its not such an issue.

    So like all issues “it depends”. Be explicit in the sale and purchase agreement about the intention to trade in a new location to avoid legal action.

Join the discussion!

Trending Stories Right Now