Protect Goodwill in Your Business
It takes time, energy, and continuous effort to build a brand that attracts loyal customers. This effort is rewarded by word of mouth referrals and repeat business. Without a doubt, the good name you worked so hard to earn is one of your most valuable business assets. This solid customer base and positive employee relations is known in business as “goodwill.”
Most small business owners understand that a company’s goodwill is vitally important, but how do you protect it?
How people feel about your brand isn’t a tangible asset you can insure, like a building or machinery. Goodwill is something that must be earned by providing consistent quality products and service, and maintained by taking appropriate steps to protect the reputation associated with your business or service.
By acknowledging that goodwill is a direct response to your actions and business management, you can take steps to safeguard your goodwill in the marketplace.
Register a trade name or trademark
Registering a trade name – also known as your legal corporate name or business name – can protect your company’s goodwill in two ways:
1. It will help build greater brand recognition.
2. It will prohibit anyone else from registering a business under the same name or a similar one, deliberately or unintentionally “poaching” the goodwill you’ve developed.
Likewise, registering a trademark – that is, a word, phrase, symbol, logo, or design used to identify your company’s goods or services – can protect your business’s goodwill under the auspices of your country’s intellectual property laws.
In addition to safeguarding your company’s goodwill, a trade name/trademark may become assets included in the sale of your business – thereby increasing your company’s overall value.
When partners part ways or employees end their contracts, they leave a company with valuable insider knowledge. It’s crucial to ensure your trade secrets and customer data won’t be used by a former insider to their own advantage – or shared with a competitor.
You can prevent your customer relationships (and therefore, goodwill) from being stolen with a non-compete agreement. Take care that any non-compete agreement is signed at the time you make an offer of employment or begin a partnership; otherwise, you may not be able to enforce it.
Having a legal agreement in place is wise for several reasons. In addition to protecting the relationship you’ve nurtured with your customers, just like a trade name or trademark, a non-compete will increase your company’s value in the eyes of a future buyer.
Because goodwill is largely intangible, it can be hard to measure. Ultimately it is determined by how much above book value a buyer is willing to pay for your business.
You can monitor how your customers feel about your business in the meantime by keeping tabs on markers like increased interaction on social media, conversion rates, and profit growth.
When it comes to legal protection, the sooner you register your trade name, trademarks, and have legal agreements in place, the better.
Of course, the best thing you can do to continually increase the goodwill of your company – and its value – is simple: take pains to consistently provide the best service you can to every single customer who chooses your business over the competition.