The components of Goodwill can be challenging to measure objectively, but doing so in several valuation scenarios is critical. The Multi-attribute Utility Model provides the simplest and most efficient means of determining the value of the components of Goodwill.
The MUM is an allocation model for distinguishing enterprise goodwill from personal goodwill. It is a well-defined method used in many disciplines—economic, political, and scientific—to establish decision support for subjective problems.
The MUM lends itself to consistency, introduces objectivity into an otherwise subjective assignment, and provides for sensitivity analysis of the outcome.
The objective of using the MUM method is to distinguish the value of personal and enterprise goodwill from total goodwill, such that a well-founded basis for the allocation can be formed and communicated.
The Process Made Easy:
Define an Objective
Establish Alternatives
Define the Attributes
Measure the Utility of Each Attribute
Aggregate the Results
Evaluate the Alternatives
Express an Opinion
The characterization of “value” between personal and enterprise goodwill is becoming an increasingly important business valuation issue. The characterization is often a factor in corporate taxation where the source of proceeds from a sale or liquidation can be considered personal goodwill and therefore not subject to corporate taxation. Characterization of goodwill is primarily true for marital estate dissolution disputes, where an increasing number of states are requiring a separation of personal versus enterprise goodwill and excluding personal goodwill from the marital estate.
Segregating the intangible value of a company between personal and enterprise goodwill is often a daunting valuation task. This does not have to be the case. A Multi-attribute Utility Model (MUM) provides a simple but sophisticated method for solving this problem.
MUM is a mathematical tool for evaluating and comparing enterprise and personal characteristics to assist in decision making about complex alternatives, especially when competing interests are involved. The MUM is designed to answer the question, “Who owns the goodwill?” The model allows a valuator to assign scores to alternative choices in a decision situation where the alternatives can be identified and analyzed. It also allows a valuator to explore the consequences of different ways of evaluating the choices. The model is based on the assumption that the apparent desirability of a particular alternative depends on how its attributes are viewed.
The MUM is an allocation model for distinguishing enterprise goodwill from personal goodwill. It is a well-defined method used in many disciplines—economic, political, and scientific—to establish decision support for subjective problems. The MUM lends itself to consistency, introduces objectivity into an otherwise subjective assignment, and provides for sensitivity analysis of the outcome. The objective of using the MUM method is to distinguish the value of personal and enterprise goodwill from total goodwill, such that a well-founded basis for the allocation can be formed and communicated.
Under the MUM method, the valuator allocates alternative percentage ranges between personal/professional goodwill and enterprise goodwill. The alternatives define the possible outcomes resulting from the application of the MUM method. The alternatives are defined as a range of percentages of personal goodwill. The enterprise goodwill is the reciprocal percentage of the personal goodwill outcome.
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PRINCIPAL
