Is goodwill worth anything – especially in times like these?

Warren Buffett, Chairman of Berkshire Hathaway, describes how he was brought up to believe the only real assets were tangible assets, and that did not include goodwill, but later he changed his mind.

His experience of inflationary times taught him that fixed assets do not keep their value, but goodwill was always worth something.

Of course, a cynic might point out that the same Warren Buffett has just suffered a huge decline in his nominal wealth, following a fall in the price of his shares in Berkshire Hathaway.

However that in turn begs the question as to what extent the nominal value of shares reflects the true value of a business – again, especially in times like these?

Buffett is certainly right that a business has no more valuable asset than a reliable customer.

The difficulty is in putting a cash value on how reliable that customer is.

Once you have a customer, you must make every effort to keep him – it is amazing how negligent some businesses are in that respect – but there are no guarantees, no matter how hard you try.

Even if you retain customers’ goodwill, there is no altering the fact that in a recession many customers will have less to spend and some will disappear altogether.

That uncertainty has to be reflected in a company’s nominal value, but the goodwill of a reliable customer is still an asset that should be guarded and maintained as carefully as any item of plant and machinery – especially in times like these.