Dani's first step is to check how much its worth in case Dani needs to borrow money. On the balance sheet, Dani and the accountant find $15,000 worth of goodwill in the assets column.
It dates back to when her parents bought the bakery and paid a higher price because of its good reputation. Dani’s accountant recommends turning goodwill into a different type of asset more appealing to lenders or investors.
Dani asks her parents what goodwill means for the bakery. They say it reflects their good relationship with local cafes — selling doughnuts to other businesses is what helped make the bakery a success 20 years ago.
At the moment, the bakery has informal arrangements with three local cafes to supply doughnuts and other treats. Dani’s accountant recommends writing up formal supply agreements for each cafe.
Each cafe agrees to order at least $90 worth of baked goods a week for 48 weeks a year — total sales worth almost $13,000 each year.
Now Dani’s balance sheet has more in its intangible assets column:
• $2,000 in goodwill
• $13,000 in supply agreements.
Supply agreements are a valuable asset, and they give Dani the reassurance of guaranteed income.