Goodwill or identifiable assets: valuing an acquisition in 2026

Let us set the scene before the offer. A Geneva consulting firm is offered for sale at CHF 800 000. Its balance sheet shows net assets of CHF 300 000: some cash, IT equipment and trade receivables, less debts. The gap is CHF 500 000. This gap is not an error: it is goodwill, and it will appear as a line in its own right in your financing plan.

Goodwill is the part of the price that remunerates what the balance sheet does not measure: the loyal client base, the staff's know-how, the reputation, the location. Identifiable assets, on the other hand, are the items that can be inventoried and valued separately: stock, machinery, buildings, receivables, patents.

On a price of CHF 800 000 and net assets of CHF 300 000, you are therefore buying CHF 500 000 of clientele, know-how and reputation. This amount is the riskier of the two, because it depends on the company's ability to retain its clients after the seller leaves.

Swiss accounting law governs this point in Article 960d of the Code of Obligations (CO). This article deals with intangible assets, including acquired goodwill. It allows it to be recognised as an asset if the company has paid for it, and requires it to be amortised over its useful life. You will find the text at fedlex.admin.ch.

For the general definition of the term and its variants, you can consult our article on what goodwill covers in accounting. Remember one simple rule here: the more goodwill weighs in the price, the more the due diligence (the in-depth examination of the company before the offer) must focus on the client base and its dependence on the seller.

Before the negotiation, you need a price range. No single method is the only valid one. Let us return to the same firm to illustrate how far they diverge.

Net asset value adds up the assets, at market value, and deducts the debts. It answers the question: what would it cost to rebuild the company without its clientele? On our example, it gives CHF 300 000. By construction, it ignores goodwill.

Earnings value capitalises the expected future profits. Assume a normalised annual profit of CHF 120 000 (after a market-level salary for the manager) and a capitalisation rate of 15%, which is common for a small services business. The earnings value reaches CHF 800 000. A rate of 12% would bring this figure to CHF 1 000 000: the choice of rate weighs very heavily.

The practitioners' method, widely used in Switzerland, weights the two approaches. The classic formula counts earnings value twice and net asset value once. Calculation: (2 x 800 000 + 300 000) / 3 = CHF 633 333. Some studies use a different weighting depending on the sector: a service business will weigh more heavily on earnings, an industrial business more heavily on net assets.

The EBIT multiple (earnings before interest and taxes) applies a sector coefficient to EBIT. With an EBIT of CHF 130 000 and a multiple of 5, the result is CHF 650 000. Multiples vary according to size, sector and the recurrence of revenue.

The four methods therefore produce a range of CHF 300 000 to CHF 800 000 for the same company. This gap is not a flaw: it measures goodwill precisely and signals the negotiation zone. An estimate made without auditing the accounts remains indicative. Have it validated by a chartered accountant before submitting an offer.

Source: Illustrative Geneva consulting firm (asking price CHF 800'000, net assets CHF 300'000) — indicative estimate, to be validated by a chartered accountant

After signing, goodwill enters your accounts. Here is the chronology of the first balance sheets.

Under Swiss commercial law, acquired goodwill is capitalised on the balance sheet, within intangible assets. It is then amortised over its useful life. Under the provisions on financial reporting (Art. 960a and 960d CO), this period must be estimated prudently. Practice uses five years by default. A longer period, up to ten years, must be justified, for example by long-term client contracts or a stable market position. Beyond that, the justification becomes difficult to defend.

Let us return to our CHF 500 000 of goodwill. Over five years, the annual amortisation is CHF 100 000. Over ten years, it falls to CHF 50 000. The difference of CHF 50 000 a year shows up directly in your results for the first financial years. A short period reduces accounting profit more quickly, but cleans up the balance sheet sooner.

The effect on equity is immediate. If you finance the acquisition through a company, goodwill appears as an asset, but each amortisation charge reduces equity. For a newly created company (an SA with a minimum share capital of CHF 100 000, or a Sàrl from CHF 20 000), high goodwill can absorb a significant share of the capital within a few financial years. This must be taken into account before the company is created, when sizing the capital.

Identifiable assets follow separate rules: machinery and furniture are amortised over their useful life, and stock is valued at cost or at market value if lower. Goodwill, by contrast, has no independent resale value: in the event of difficulty, it is the first item to lose its value.

Source: Art. 960a and 960d CO (intangible assets, amortisation according to useful life) — fedlex.admin.ch

The tax authorities do not always follow the accounts. This point is settled during the negotiation, because it determines the structure of the transaction.

Two routes exist. The first is the acquisition of assets and liabilities: you buy the company's components, goodwill included, through your own structure. Goodwill acquired in this way is generally treated as an amortisable asset. The amortisation is in principle deductible, but rates and conditions vary from canton to canton. Some cantons allow tax amortisation of acquired goodwill over several years, others limit it. Confirm the practice with your canton's tax administration (for Geneva: ge.ch/dossier/vos-impots) before building your plan.

The second is the purchase of shares: you buy the company's securities. The company keeps its assets and its balance sheet unchanged, and no goodwill appears in its accounts. The price paid above the book value of the securities constitutes, for you, the acquisition cost of the shareholding, which is in principle not tax-amortisable. Financing this price, in particular by borrowing, raises questions about the deductibility of interest and repayment by the acquired company, which must be examined carefully.

On the seller's side, the regime also differs. A seller who is a private individual and disposes of shares held in private assets generally realises a capital gain exempt from income tax, subject to the rules on indirect partial liquidation and on transfers to a company controlled by the seller. A person selling a business held in a sole proprietorship realises a liquidation profit, taxed separately at a reduced rate in most cantons. The Federal Tax Administration describes these mechanisms at estv.admin.ch.

The seller often prefers a sale of shares, the buyer an acquisition of assets. This divergence of interests feeds the negotiation of the price. Each situation requires a numerical simulation.

At the time of signing, it is the bank that examines your figures. It distinguishes between the price of the assets, which it can take as security, and the price of the goodwill, which it cannot seize in the event of default.

On our example, the CHF 300 000 of assets can serve as the basis for a secured loan. The CHF 500 000 of goodwill rests solely on future cash flows. Banks therefore often expect a higher equity contribution for the goodwill portion, frequently in the order of 20% to 30% of the total price, depending on the institution and the sector.

Repayment capacity is measured as follows: normalised profit, after the manager's salary, must cover interest and debt amortisation with a margin. On a loan of CHF 560 000 amortised over seven years, the capital instalment alone exceeds CHF 80 000, that is, two thirds of a profit of CHF 120 000. The margin is thin: a 15% fall in revenue makes it disappear.

To share this risk, the sale contract provides several protections. The seller's warranties cover the accuracy of the accounts, the absence of disputes and the tax position, with a cap and a defined duration. Deferred payment withholds part of the price, for example CHF 100 000, until the warranties expire. The earn-out links a fraction of the price to the results of the following two or three financial years: if revenue holds up, the seller receives the balance, otherwise the price falls. This clause requires a precise definition of the calculation, to avoid disputes.

A review of the accounts by a third party before the offer remains the best protection. The commercial register (zefix.admin.ch) also makes it possible to verify the legal situation of the target company before going further.

The table below summarises the five criteria on our example of an acquisition at CHF 800 000.

Criterion | Goodwill (CHF 500 000) | Identifiable assets (CHF 300 000) Valuation | Earnings value, EBIT multiples, very sensitive to the rate | Net asset value, based on market values Accounting | Capitalised, amortised over 5 years (up to 10 years if justified), i.e. CHF 100 000 to CHF 50 000 per year | Amortised according to the useful life of each asset Taxation | Amortisation deductible depending on the canton, in an asset purchase only | Amortisation allowed at the usual rates Financing | Cannot be pledged, higher equity contribution | Bank security possible Risk | Depends on client loyalty after the seller leaves | Limited by resale value

Buyer of a firm or a service business: goodwill dominates the price. Concentrate the due diligence on the client base, provide for a handover period with the seller and favour an earn-out or deferred payment.

Buyer of an industrial company: assets dominate. Have the machinery and stock valued by an expert, and base the credit on these guarantees. Goodwill still has to be justified, but it weighs less.

Seller preparing an exit: earnings value rises if profit is stable and the company no longer depends on you. Document your contracts, delegate client relationships and compare a sale of shares with a sale of assets from a tax perspective before opening discussions.

First-time entrepreneur starting a business without taking one over: no goodwill has to be paid. In return, the client base has to be built, and the creation of an SA or a Sàrl requires share capital and registration in the commercial register. It is the cheapest route at the outset, but the slowest.

In all cases, have the price, the structure and the tax treatment validated by a chartered accountant before signing.