What is goodwill?
- By Book Keeping Pros
- Sources checked 15 Oct 2026
Definition
Goodwill is an intangible asset: the part of a business's worth that comes from its good name and relationships, such as loyal customers, a recognised brand, capable staff and well-run procedures. It has no physical form, cannot be counted like stock or cash, and is most often discussed when a business is being bought or sold.
Goodwill helps explain why one business can be worth more than another with the same equipment, stock and cash. A café with regular customers, a good name and a settled team has something its newer competitor down the road does not, even if their fit-out cost the same.
In everyday speech goodwill means friendly feeling, as in a goodwill gesture to an unhappy customer. In the accounts it means the asset described here, and a discount or credit given to keep a customer happy is not part of it.
Whether goodwill appears in a business's books at all, and at what amount, is a question for your accountant. What a bookkeeper can do is keep the records that show the business's track record, such as steady sales, repeat customers and reliable financial statements.
In Australia
business.gov.au's glossary treats goodwill as an intangible asset whose worth lies in the business's reputation. Its guide to valuing a business says goodwill can include customer loyalty and relationships, brand recognition, staff performance, customer lists, the business's reputation and its operating procedures.
The same guide lists details of goodwill among the information to prepare when valuing a business. It says working out goodwill is complicated, that different methods give different results, and suggests asking a professional, such as your accountant, for help.
Worked example
| Part of goodwill | Records that can show it |
|---|---|
| Customer loyalty | Sales history by customer, showing repeat orders over time |
| Customer lists | An up-to-date customer list with contact details |
| Business reputation | Steady sales across several years of financial statements |
| Operating procedures | Written procedures for ordering, invoicing and customer service |
Illustrative example only: these rows show the method and are not sourced data.
Common mistakes
- Entering a figure for goodwill in the books based on the owner's own estimate, without asking your accountant.
- Assuming the whole price paid for a business went on its equipment and stock, without asking your accountant how the rest is recorded.
- Letting the books fall behind before a sale, so the business cannot show the steady trading its goodwill rests on.
Related terms
Related service
Management and cash-flow reports
Monthly reports that show where the business stands.
Sources
- Key financial terms
business.gov.au, Australian Government. Current at 15 October 2026, released 9 July 2024. Checked 15 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.
- Value your business
business.gov.au, Australian Government. Current at 16 October 2026, released 11 July 2024. Checked 16 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.