How Goodwill Factors Into Your Valuation

Welcome back to another edition of The Wise Exit newsletter. This week, we’re covering: 

• Why goodwill matters more than most founders realize

• 5 questions to ask yourself to understand how your intangible assets could affect your exit

• 3 action steps to take this week to start getting ahead of this

Let’s get to it.

💡 This Week’s Big Idea

What Every Founder Can Learn From Papa Johns and How Goodwill Factors Into Your Valuation

Whenever founders think about what their business is worth, they tend to focus on the tangible things like revenue, EBITDA, equipment, or inventory. The things you can point to and put a concrete number on.

But for many businesses, a significant portion of their value lives somewhere else entirely. It lives in the intangible things — your brand reputation, customer relationships, team, market position, and most importantly, the story behind why customers choose you over your competitors.

That's what we call goodwill. It’s the value of your business beyond just its physical and financial assets, and it's what makes a buyer willing to pay more than what the numbers alone would justify.

One of the better examples of the impact of goodwill is the story of Papa Johns.

For over a decade, John Schnatter was the face of the brand (quite literally). He was on every pizza box, commercial, and NFL sponsorship deal. You couldn’t find Papa Johns without seeing his face plastered somewhere.

But when his personal reputation collapsed after a controversy, the company stripped his name from everything and cut ties entirely.

The results were catastrophic for the company.

The stores were still there, and the recipes hadn't changed. But today, their stock is down 77% from its peak and isn’t showing signs of improving.

Nothing about their business fundamentals changed except their goodwill. And that gap between what the financials said and what actually happened to the value of the company is the best example of how goodwill can make or break your business.

At the end of the day, what goodwill really comes down to is the story you’re telling.

Because it isn’t just something that gets calculated into your valuation when you’re ready to exit. It’s something you build and communicate as your business grows over time.

It's the narrative of why:

• Your team stays

• Your customers continue coming back

• Your business is worth more than the dollars on a spreadsheet

• A buyer would pay a premium for what you've built over a competitor

Fortunately, goodwill is something you can continuously improve upon, as long as you start early enough.

The work of separating personal from business goodwill, documenting what makes your company valuable, and building a brand that stands on its own is exactly the kind of preparation that commands a higher multiple.

But more importantly, it builds a stronger business either way, whether you’re ready to sell in the next 12 months or 12 years.

If you want help thinking through where your goodwill actually lives today and what it means for a future exit, just reply to this email or contact our team here. We're always happy to walk you through it, wherever you are on your journey.

❓ 5 Key Questions to Ask Yourself This Week

1️⃣ If I stepped away from my business tomorrow, how much of its value would walk out the door with me, and is that something I've actively worked to address?

2️⃣ Can I clearly articulate what makes my business valuable beyond just my financials?

3️⃣ Is the goodwill in my business tied to the company, or is it tied to me personally? And do I know the difference?

4️⃣ Have I documented everything that makes my business valuable in a way a buyer would understand?

5️⃣ If a buyer did their research on my business, what would they find that gives them confidence its value holds, even without me in the picture?

📋 3 Action Items for This Week

☑️ Make a list of where your goodwill actually lives: Customer loyalty, brand reputation, key team members, proprietary processes, market position. Write it all down. Then, honestly assess how much of it is tied to the company versus tied to you personally. That gap is exactly what a buyer will price into their offer.

☑️ Start separating yourself from the things that should belong to the business: If you're still the one holding every key client relationship, running every important meeting, or serving as the public face of everything, start building systems and people around those parts. This won’t happen overnight, but it has to start somewhere.

☑️ Write down your business story: Before you ever sit across from a buyer, you need to be able to clearly and confidently explain what makes your business valuable beyond just the numbers. Practice sharing it out loud. If you struggle to articulate it, a buyer will struggle to believe it.

That's all for this week.

Remember, goodwill is the value of everything you've built that doesn't show up on a balance sheet. And it can be your biggest asset or biggest liability, depending on how it's built.

Whenever you're ready to talk through how goodwill factors into your exit strategy, reply to this email or reach out to us. We're always happy to help.

Talk soon,

Brian Dukes
Managing Partner at Exitwise