6

In Korea, it is customary for prospective buyers to pay the extra money to the owner of any business establishment when they want to buy it. The more customers and nicer facilities any store or shop has, the more money the buyer has to pay in order to buy it as a premium money.

For example, there is a store which costs 100,000 dollars to build. For the first year, its business is slow. Several years later, the store gets to have so many customers and its business is really good. The owner wants to sell his store at a great profit when someone wants to buy it.

What do you call "the additional money" which the buyer has to pay in addition to the original cost "100,000" dollars?

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    Such a custom doesn't exist in western culture, to my knowledge. The first payment on a piece of property is called the deposit, but it's not additional money but a part of the total cost of the property.....related: good-faith deposit financial-dictionary.thefreedictionary.com/Good+faith+deposit – user180089 Jul 17 '16 at 4:45
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    @V0ight: I think the term "customary" in the question is misleading. It's not exactly a "custom" to pay more for a going concern with a high turnover and good facilities, than for a going concern with low turnover and poor facilities. But it certainly is an observable practice! It's just one example of something being worth more than it cost to build. – Steve Jessop Jul 17 '16 at 12:41
  • How about brand loyalty? They're purchasing the company, and its following. If a company were looking to acquire Coca-Cola, Coca-Cola might charge more than they're worth, because of the loyalty of their customers to choose them over someone like Pepsi. So by purchasing the restaurant in question, the owners might charge more because of the loyalty its customers have over another restaurant down the street. – Zymus Jul 17 '16 at 20:53
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    Agree with Jessop. I doubt this is "customary", even in Korea. It's simple economics. The value of a business is absolutely affected by its customer base. This is an empirical result, not a "customary" one. – Marshall Eubanks Jul 18 '16 at 1:12
  • It needs to be noted that "nice facilities" is a physical characteristic, directly related to the value of the property. If you have two otherwise identical buildings in the same neighborhood, one that's well-maintained and the other run-down, the first will have a higher property value. This is totally unrelated to customer flow and other dynamics of the business. – Hot Licks Jul 18 '16 at 12:14
25

Goodwill may be a term that you are looking for:

"The goodwill amounts to the excess of the "purchase consideration" (the money paid to purchase the asset or business) over the total value of the assets and liabilities."

More generally, you seem to be talking about the intangible assets of the business, if you're defining "extra" as anything beyond the funds paid for the physical facility (as suggested by focus on the cost of building the store).

You could also be talking about the capital gain or appreciation in value, which would even apply to the real estate itself being sold for more than the $100K it cost to build. Appreciation is more a result of rising prices of comparable assets, while the term "capital gain" leaves open the possibility that it may be more resulting from active efforts of the owner.

Economically rational sellers will generally sell for as much as they think the market will bear (i.e. as much as they think they can get) regardless of the resources they originally put into it.

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    You need to be a bit careful with the term. It has a particular meaning to accountants and tax people. There are regulations controlling the treatment of goodwill. Some of the concepts you mentioned are not goodwill, and some may be. Tangible assets and intangible assets that can be identified (and priced) are not goodwill. So it is usually just defined as whatever premium was paid above the fair market value of everything you can itemize. – Phil Sweet Jul 17 '16 at 5:32
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    @pipe: Goodwill, to business people, has a specific meaning, and it is often put on the accounts at a particular value. It does not mean 'the kindness of the buyer's heart'. – TimLymington Jul 17 '16 at 11:06
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    @pipe: I am sure the buyer in Korea also does not pay the extra money just because he wants to. – Peter Shor Jul 17 '16 at 12:20
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    -1 goodwill is for intangibles like reputation, not cleat things like customer relationships and quality of facilities, those are specific assignable resources. – mxyzplk Jul 17 '16 at 14:17
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    -1 From the link you quote in your own answer: “Examples of identifiable assets that are not goodwill include a company’s brand name, customer relationships, artistic intangible assets, and any patents or proprietary technology. – Jim Jul 17 '16 at 16:07
15

There isn't really a specific word for this in English. In general, the value of a business is not just the value of the building, fixtures, and fittings; a successful business simply has a greater value than an unsuccessful one.

You might apply tangible1 and intangible2 as this page does:

Although there are relatively easy ways to value certain parts of the business – such as stock, fixed assets...there will very probably be a sizeable intangible element to the value of a business.

In business terms, this kind of valuation is called an income valuation (as opposed to liquidation valuation) because it presupposes that the business will continue operating.

1 tangible "able to be touched or felt" - Merriam-Webster

2 intangible "not made of physical substance : not able to be touched : not tangible" Merriam-Webster

  • Yeah, to be honest I think there's a mistake in thinking that there's anything "extra" or "additional" from the buyer's perspective at all. For the seller, appreciation might be appropriate, though. – hobbs Jul 17 '16 at 23:31
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    The word as defined by FASB, is in fact, Goodwill, as is stated in another answer. "For example, a company like Coca-Cola (which has been around for decades, makes a wildly popular product based on a secret formula, and is generally positively perceived by the public), would have a lot of goodwill. " – MikeP Jul 18 '16 at 5:18
11

If you're buying a company then the value of that company is factored into the price, usually some multiple of the yearly revenue. The specific multiple is determined by industry and often by credit agencies. The total value of the company, the valuation, therefore includes the physical and financial assets, as well as a measure of how much money it is expected to make.

If you're merely buying a property then the value of the company that inhabited that property is not considered meaningful, except insofar as it increased the inherit value of the property (through, say, fame), which in turn is a factor of what people are willing to pay for it. Such factors are usually called a markup. If the markup is high relative to similar properties, you are said to buying at a premium.

Notably any money you make on a property past what it cost you is simply called profit. All value is embedded in the property itself and is not differentiated between base cost and "tip".

5

In that case you're buying at a premium:

a sum over and above a regular price paid chiefly as an inducement or incentive

[Merriam-Webster]

  • Hello, Frencesco. Welcome to ELU. Your answer was flagged as low-quality for its length and content. We encourage a definitive answer with a dictionary link, proper reference and examples. Please try to include them next time you answer a question here. – user140086 Jul 17 '16 at 14:49
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    I am on a mobile. Will try to improve if the answer is not deleted earlier. It would be a shame since premium is used exactly in the meaning requested from the op. But so it goes :-) – Francesco Jul 17 '16 at 14:51
  • Thanks for your comment in any case I appreciate that you took the time for it – Francesco Jul 17 '16 at 14:52
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    The reason I edited your post and upvoted it is to prevent your answer from getting deleted. It is cleared from the review. Please expand your answer when you have time as I think it is the answer to the question. – user140086 Jul 17 '16 at 14:53
1

Not as an additional payment, but you may pay more for a business that is a 'going concern' rather than just premises that you intend to close down, refurbish and then reopen potentially as a different type of business.

  • +1 for going concern, as you're not just buying the building, but also the business which is the setup, the customers, the credit, the suppliers, and the reputation! – RemarkLima Jul 18 '16 at 9:47
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    @RemarkLima But the phrase going concern has a specific meaning in accounting and business context. It just means "a company which is operating". In other words, it means "a company which hasn't declared bankruptcy" – user140086 Jul 18 '16 at 11:29
  • @Rathony which I'd argue is exactly what the question is asking. – RemarkLima Jul 18 '16 at 12:14
1

As @Francesco mentioned in the answer, it is called a premium. Another word that is used in the legal context is foregift which means:

an advance payment or premium paid by a tenant on taking or renewing a lease.

[Dictionary.Com]

The linked 'A study on the Foregift of Business Building' published by Korean Comparison Civil Law Academy has the following summary:

... the reality is that there are many incidents where money is being given and received as nominal Foregift... the amount of the Foregift is as much as several hundreds of millions of won and from the evidence that there are numerous cases of disputes regarding the Foregift during lease disputes, it can be concluded that there must be laws regarding the Foregift unlike the western countries where they have the freedom of contrast and the government leaves it to the tenants and landlords...

Many other legal documents translate the Korean word '權利金' to 'foregift'.

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