When I Buy A Business, How Is Goodwill Determined?

Goodwill is the difference between the selling price and the estimated values assigned to all the assets, not including the goodwill. The seller's asking price will be broken down into its various components such as equipment, inventory, furniture, accounts receivable, (if being purchased) miscellaneous assets, assumed liabilities (if agreed upon), possibly real estate. The mathematical difference between the sum of all these other assets and the selling price by definition equals the goodwill. Goodwill is a highly valued asset in any on-going business. Think of Goodwill as the "profit-generating intangible" that makes that business worth more than a start-up with no current customers, no employees, no name recognition, no established vendors, no distribution system, no lessons-learned, no mentor to help with the transition, etc. It is the "going concern value." Fixed assets without the goodwill are just non-productive equipment and furnishings.