Goodwill has been said to be the attractive force which brings in customers. Hence to determine the nature of the Goodwill in any one given case, it is necessary to consider the type of business and the type of customers.

The following are the principal classes of Goodwill:

(a) CAT Goodwill:

Special feature of a cat is that it remains at one place and does not change its living place from time to time. It is said that cat loves place more than person. Goodwill of some business is like cat because it depends on the place of business and it does not change due to change in ownership.

The cat stays in the old home although the person who has kept the home leaves, and so it represents the customer who goes to the old shop whoever keeps it, and provides local goodwill. This type of goodwill has stability and therefore its value is always maximum.

(b) Dog Goodwill:

Dogs are attached to the persons. Dog has more affection for its owner than the place. The faithful dog is attached to the person rather than to the place, he will follow the outgoing owner if he does not go too far.

There are some businesses whose goodwill depends on the owner. Such goodwill is called Dog Goodwill and its value is less. Certain customers are attached to the owner of the business due to his exceptional skill, personality, honesty etc. This applies specifically to professionals like Chartered Accountants, Doctors, Lawyers, and Sweet-stall Owners etc. Dog goodwill is difficult to transfer and is correspondingly less valuable.

(c) Rat Goodwill:

The characteristic of a rat is that it moves from place to place. The rat has no attachments and is purely casual. If the Goodwill of a business often changes, it is known as Rat Goodwill. Such goodwill is valueless.

(d) Rabbit Goodwill:

The rabbit is attracted by mere propinquity. He comes because he happens to live close by and it would be more troublesome to go elsewhere.

Goodwill based on Nature of Customer

Goodwill is an intangible asset that represents the reputation and brand value of a business. It is an essential aspect of a company's valuation. The nature of goodwill can vary depending on various factors such as the type of customers, their loyalty towards the brand, and the reputation of the company.

Types of Goodwill Based on Nature of Customer

1. Local Goodwill: Local goodwill is the type of goodwill that a business earns through its local customers. The local customers are the ones who are familiar with the business and prefer to purchase from it due to its reliability and reputation. Local goodwill is essential for small businesses as it helps in establishing a loyal customer base.

2. National Goodwill: National goodwill is the type of goodwill that a business earns through its national customers. National customers are the ones who are familiar with the business and prefer to purchase from it due to its brand value and reputation. National goodwill is essential for businesses that operate on a national level as it helps in creating a strong brand image.

3. International Goodwill: International goodwill is the type of goodwill that a business earns through its international customers. International customers are the ones who are familiar with the business and prefer to purchase from it due to its global brand value and reputation. International goodwill is essential for businesses that operate on a global level as it helps in expanding their customer base.

Valuation of Goodwill

Valuation of goodwill is important for businesses as it helps in determining the true value of the business. There are several methods of valuation of goodwill such as:

1. Average Profit Method: This method calculates the goodwill based on the average profits of the business over the past few years.

2. Super Profit Method: This method calculates the goodwill based on the difference between the actual profits of the business and the normal profits that a similar business would have earned in the same period.

3. Capitalization Method: This method calculates the goodwill based on the future profits of the business.

Conclusion

Goodwill is an intangible asset that represents the reputation and brand value of a business. The nature of goodwill can vary depending on various factors such as the type of customers, their loyalty towards the brand, and the reputation of the company. Valuation of goodwill is important for businesses as it helps in determining the true value of the business.