Legal Definitions - going-concern value

Going-concern value refers to the worth of a business as an active, operating enterprise, rather than merely the sum of its individual assets if it were to be liquidated. This value includes not only the physical assets but also intangible elements such as its established customer base, brand reputation, operational systems, skilled workforce, and the potential for future earnings. It reflects the assumption that the business will continue to operate profitably into the foreseeable future.

• Example 1: Acquisition of a successful restaurant
  A well-established restaurant with a loyal customer base, a strong brand, and efficient kitchen operations is being sold. The buyer pays significantly more than the combined market value of its kitchen equipment, tables, chairs, and the building itself. The additional amount paid reflects the restaurant's going-concern value, acknowledging its existing profitability, customer goodwill, and operational momentum, which are valuable because the business is already running successfully and is expected to continue doing so.

• Example 2: Valuation for a bank loan
  A manufacturing company seeks a large bank loan to expand its operations. The bank assesses the company's value not just by its factory building and machinery, but also by its long-term supply contracts, patented manufacturing processes, experienced management team, and consistent revenue streams. The bank considers the going-concern value because it is lending against the company's ability to generate future income and repay the loan, which depends on its continued operation and overall business health, not just the static value of its tangible assets.

• Example 3: Business sale versus asset sale
  A small, family-owned bakery decides to sell. One potential buyer offers to purchase the entire business, including its brand name, secret recipes, customer list, and current staff, for a premium price. Another buyer only offers to purchase the ovens, mixers, and display cases at their individual market value. The offer to buy the entire business reflects its going-concern value, recognizing the additional worth derived from its operational continuity, established reputation, and potential for continued revenue generation. The offer for just the equipment represents only the asset value, ignoring the business's operational worth as a functioning entity.