Factors Affecting Goodwill

हिंदी में पढ़ें:

When we think of a product, we probably also think of the company that makes or sells that product. For example, when we think of a phone, companies like Apple, Xiaomi, Samsung, Nokia, etc. comes to our mind. The reason for this happening is that those companies have made their identity/mark in the market with their expertise. Whatever identity the companies have established/made in the market is called goodwill in accounting.

Goodwill helps in making the business different from each other and it gives an identity to the business. Goodwill is very sensitive by nature because small reasons affect the goodwill. Goodwill is difficult to make but very easy to destroy. Product, quality, service, nature of business, nature of management, location, age of business, etc. play an important role in making or deteriorating goodwill.

Factors Affecting Goodwill

Following are the factors affecting goodwill:

1. Nature of Business:

Goodwill depends on the nature of business; hence nature of business affects goodwill. For example, if the nature of business is monopoly, then goodwill can be easily created in the business, similarly if the nature of business is non-monopoly such as perfect competition, monopolistic competition, etc. then it is complicated to create goodwill.

2. Time:

Time also affects goodwill because as time passes, the reputation of the business starts building in the market, but sometimes newly started business also gets more reputation from the market. The reputation of any business depends on the nature of the business, product, service, nature of management, etc.

3. Product:

The consumers join the business only for the product. If the quality of the product is good then more consumers join the business, similarly, if the quality of the product is bad then fewer consumers join the business. That is why products play an important role in affecting goodwill.

4. Location:

Location helps in business growth as location helps in the production, marketing, etc. functions of the business. Most of the businesses close down due to bad location, which is why location affects the goodwill.

5. Market Presence:

Market presence means the products, quality, services, etc. provided by the business in the market. The greater the presence of the business in the market, the more it will help in building a reputation in the market.

6. Efficiency of Management:

Efficiency of management also affects goodwill because efficient management directly helps in the growth of the business. The greater the efficiency of management, the greater the development of the business.

7. Intellectual Properties:

Intellectual properties include trademarks, patents, copyrights, etc. These help in creating uniqueness in the product. Intellectual properties are governed by law and protect the rights of the owner. This is why intellectual properties affect goodwill.

Read Also:

• What is Goodwill? Meaning, features, and more.
• Classification of Goodwill

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