Situation
A consulting business owned by nine principals was being sold to a larger entity. As part of the sale, a business valuation was needed, including determining the personal goodwill of each owner to take advantage of the significant tax advantages of the goodwill allocation.
Merrimack Business Appraisers’ Approach
Given the nature of a consulting business, the calculation of personal goodwill by individual owners needed to account for many variables including, but not limited to, determining individual client involvement, allocation of time and any variations in billable rates.
Lou Pereira of Merrimack Business Appraisers developed a multivariate model to account for all the variables involved and then painstakingly completed the model for each of the nine individuals. The result calculated each owner’s personal goodwill allocation.
Valuation Outcome
The business valuation included determining the personal goodwill of each owner in the consulting business. This calculation supported the allocation of the sales price to each of the nine owners of the consulting business and provided each individual with the supporting details required to take advantage of the significant tax benefits of their goodwill allocation, reducing their tax liability.
