How do I judge whether the goodwill is worth paying for?

Goodwill is simply the part of the price above the value of the identifiable assets. Whether it is worth paying is not a question about the amount — it is a question about what the amount is buying, and that is answerable with diligence rather than argument.

Transferable goodwill, and how to test it

A location with genuine passing trade, a brand customers search for by name, contracts that renew without the owner intervening, a team that runs the operation, processes written down rather than carried in someone’s head. Each is testable: look at how customers find the business, how many of them are on recurring arrangements, and what happens operationally when the owner takes two weeks off.

Personal goodwill, which does not come with the deal

Customers who buy because of who the owner is, referral sources who send work to a person, pricing held together by one person’s judgement, or technical work only they can do. In professional practices this is often most of the goodwill, which is why those sales are usually structured with a long transition, a retention element, or part of the price contingent on clients staying.

The questions that separate the two

How did your last ten customers find you? What proportion of revenue is contracted or recurring? Who do customers ask for when they call? How long has the longest-serving employee been here? If the honest answers all point at the owner, the goodwill is personal regardless of what the listing says.

What to do when the goodwill is personal

Not necessarily walk away — reprice and restructure. A longer handover with the seller working in the business, introductions to every material customer before closing, a non-compete that is actually enforceable, and part of the price deferred against retention. The structure should reflect that the thing being bought has to be transferred rather than merely conveyed.