Essay
Goodwill in Commerce by definition is an intangible asset arising from the reputation of business and its relations with the customers and employees. This is distinct from the value of its stock and other intangible assets. Goodwill is an invisible force and it takes a fairly long time and effort to build. The benefits of goodwill shall be realized after a long time. If the goodwill is maintained well, many a generations can reap the benefits. The goodwill transcends the scope of business and becomes famous and popular world over.
A business builds goodwill by earning the respect and loyalty of customers. Customers thus learn over time that they can rely on the company to keep its word and stand behind its products and services. A business must have good consistency to fulfil the customer’s needs. Satisfying customer’s needs and delighting them constantly adds to the company's value.
Running a company for a long time adds value to the business both in actuality and on paper. Longevity is a testament to the resilience of the business model, which has weathered changes in demographics and consumer behaviour. Longevity also earns credibility and respect.
Relationships are critical to a company's success at both the customer and vendor level. When the customers know you and trust you, they are more likely to support your business. When your vendors come to know your needs and your purchasing behaviour, they cooperate and make accommodations that help your business run more smoothly. These business relationships add to the value of your company. Strong business relationships create ongoing positive associations for your brand.
Employees keep a business running, and a company that has a solid track record of taking care of its workers has a type of value not found in a business that hires mainly short-term staff. As employees stay, they develop a knowledge base that makes the business efficient and profitable. Customers see that your business is a good place to work, which adds to your reputation and increases customer loyalty. A business with long-term staff also is more valuable because it can continue to operate even if its owner takes a vacation.
In any business goodwill is the additional amount of value that a company's good reputation adds to its overall value. The sum total of that a business has done in the past, the actions it takes in the present and the future plans put together help in building goodwill. A company's reputation primarily depends upon its conduct with clients, society and environment, development of trust in its brand, transparency in its processes and the ethical conduct of the company. If a business manages to have all this, it will automatically earn goodwill for the company and the brand.
Particularly, when the company with a high goodwill is losing ground to its competitors and falls on hard times, the goodwill it has earned over the years plays a major role in keeping the company afloat.
Particularly, when the company with a high goodwill is losing ground to its competitors and falls on hard times, the goodwill it has earned over the years plays a major role in keeping the company afloat.
The goodwill is important as it is shown under a separate head in the account books of the company. It is accounted as an asset that never depreciates. Goodwill is always valued at a premium. Every business today is conscious of the image that it portrays of itself to the outside world and makes an extra effort to earn goodwill in the society. For instance, corporate houses have begun to allocate separate funds as part of their Corporate Social Responsibility (CSR).
Big Corporate under the head of CSR or Community Development works provide funds for benefit the society in various ways like constructing hospitals, schools, old age homes, rehabilitation centres, welfare programmes and so on. They in turn build goodwill for the company in the society that add great value to their businesses and differentiate them from their competitors. The high investments made by the business houses in such programmes are offset by the high rate of return, both tangible and intangible, that the business is likely to earn over several years in the future and thus, makes for a good business decision.
At an individual level also, goodwill is created over a period of time by being a trustworthy, reliable and kind person. Such a person will be respected wherever he/she goes and is more likely to be offered help if needed than a person with no goodwill or a bad reputation. The peculiar feature of goodwill is that it spreads rapidly through word-of-mouth. The reputation or the goodwill that the person has in the society will influence the society’s perspective and behaviour towards the individual.
In nutshell Ludwig Borne, German/Jewish Political Writer and Satirist rightly said that, “Goodwill is the one and only asset that competition cannot undersell or destroy”. It affects the prospects of both the business and the individual hence it is a paramount consideration.
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