How to protect the goodwill in your business
It takes time, energy, and continuous effort to build a brand that attracts loyal customers and is rewarded by word of mouth referrals. Without a doubt, the good name you earned through your hard work is one of your most valuable business assets. Together with your solid customer base and positive employee relations, it comprises “goodwill.”
If you’re like many small business owners, you realise your company’s goodwill is vitally important, but you may not know how to protect it. After all, how people feel about your brand isn’t a tangible asset you can insure, like a building or machinery.
There are steps you can take to safeguard your goodwill in the marketplace. This article will show you how.
Register a trademark
In Australia you are required to register your business name with ASIC if it is different from your legal name. Your legal name is the name of your company as registered with ASIC, your personal name if you trade as a sole proprietor, or the names of all of the parters if a partnership. You can check with ASIC if a business name is available.
Registering your business name can protect your company’s goodwill in two ways:
- It will help build greater brand recognition.
- It will prohibit anyone else from registering a business under the same name or a similar one, deliberately or unintentionally “poaching” the goodwill you’ve developed.
However, registering a business name does not protect you if someone else has already registered that name as a trade mark. You can check with IP Australia if there is an existing trade mark registered.
If you register a trade mark – that is, a word, phrase, symbol, logo, or design that identifies your company’s goods or services – you can protect your business’s goodwill under intellectual property laws. You can register a trade mark yourself with IP Australia, or use a trade mark attorney.
In addition to safeguarding your company’s goodwill, registered trade marks/trade names may become assets included in the sale of your business. This will potentially increase your company’s overall value.
When partners part ways or employees end their contracts, they leave a company with valuable insider knowledge. It’s crucial to ensure your trade secrets and customer data won’t be used by a former insider to their own advantage – or shared with a competitor.
You can prevent your customer relationships (and therefore, goodwill) from being stolen with a non-compete agreement. Typical agreements may prevent a party from:
- seeking employment from a competitor of your business
- Soliciting business from clients or customers of your business
- Recruiting employees from your business.
To be enforceable, the agreement will have to be reasonable to protect your business interests. A court would consider the duration, area, and activities of the non-compete agreement. Are they reasonably necessary when balanced against the rights of the ex-employee? Also take care that any non-compete agreement is signed at the time you make an offer of employment or begin a partnership; otherwise, you may not be able to obtain their agreement later.
Having a legal agreement in place is wise for several reasons. It will protect the relationship you’ve nurtured with your customers. And just like a trade name or trademark, a non-compete will increase your company’s value in the eyes of a future buyer.
Final thoughts on protecting goodwill
Because goodwill is largely intangible, it can be hard to measure. Ultimately it is determined by how much above book value a buyer is willing to pay for your business.
In the meantime, you can monitor how your customers feel about your business. Keep tabs on markers like increased interaction on social media, conversion rates, and profit growth.
When it comes to legal protection, the sooner you register your trade name, trade marks, and have legal agreements in place, the better.
The best thing you can do to continually increase the goodwill of your company – and its value – is simple. Take pains to provide the best service you can to every single customer who chooses your business over the competition.