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Goodwill on incorporation

Goodwill on incorporation

Client has been a sole trader (IT consultant, but not a contractor) for just over a year.

He set up a ltd co 6mths ago and hasn't used it, but now wants to.

He has 3 customers so far, (two knew him personally before he went self-employed and recommended him to the other one) and a turnover of £30k.

I don't think there is any scope for goodwill on incorporation because it's all personal to him, but am I being over-cautious?

(The client has been speaking to the "man in the pub" whose goodwill was naturally into the £thousands then [edit: "when"] they did it.)

Thanks for any helpful opinions.

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22nd Jan 2013 08:42

I would tend to agree that any goodwill, which will be minimal given the amount, would be personal to him.

 

How much "profit" is earned from the £30k turnover - this will also have a bearing on the goodwill figure!

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By Viv100
22nd Jan 2013 11:34

Most of it is profit

Thanks for your reply.

He mainly works from home, and goes into client offices for meetings and things that cannot be done from home towards the end of the project.  He is a programmer, he doesn't have much in the way of overheads or expenses.  So about £28k is profit.

He has a trading name as opposed to using his own name, and aguably, he is trying to build up a reputation based on the trading name but his second client was his former employer who came to him because of his former employment, as opposed to any advertising or networking he has done.  (He has started to promote his services/website in his niche on specialised forums/blogs and so on, but that obviously takes time, and as I say, none of his customers has so far come from those efforts)

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22nd Jan 2013 12:20

Agree

It's early days yet but given the use of a trade name, time and a few more clients, "business Goodwill" might be established.

On the profits and goodwill calculation, you'd tend to deduct a manager's salary from the existing profits to establish the figure to multiply and so, again, at the level, I'd really not bother.

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22nd Jan 2013 12:50

Are there any ongoing maintenance contracts?

If there are these are sometimes sold, so it may be possible to obtain an industry standard figure, eg 3 months contract value etc.

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By Viv100
22nd Jan 2013 13:06

No ongoing maintenance contracts

For one client, he has a retainer (actually the ex employer) to maintain their website, which he can do remotely.

For the other two (and this is how he wants to work for any new clients) he takes on a project (typically over 3-6mths) writes some very clever code in programming languages I've never heard of.

When the project is signed off, that's pretty much it.  He might offer to support it initially to check there's no bugs/it's working well etc... before the final sign off, but it wouldn't be ongoing maintenance, as such.

Eventually, if it goes the way he wants, he will take on other programmers and have several projects on the go at various stages, but that's some way off.

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By Viv100
22nd Jan 2013 13:53

@Paul

(Sorry, I missed your earlier comment)

Yes, once his notional salary is taken off, there's not a lot left.

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