Goodwill Amortization: A Simpler Path for Private Companies?

Goodwill Amortization: A Simpler Path for Private Companies?

September 29, 2025

When companies buy other companies, they often pay more than just the value of the buildings, equipment, or even the brand name. That extra amount—the premium paid over the fair value of identifiable assets—lands on the balance sheet as “goodwill.” Goodwill is a bit of a mystery box: it represents things like reputation, customer loyalty, and the promise of future profits. But what do you do with it after the deal is done?

For years, the answer was: test it for impairment every year. In other words, companies had to check if that goodwill was still worth what they thought it was, or if it had lost value. This process is complicated, time-consuming, and often expensive. Enter the Private Company Council (PCC) alternative—a new way for private companies to handle goodwill that’s a little more straightforward.

It’s also worth noting that most private companies aren’t as focused on the Price to Earnings (P/E) ratio as their publicly traded counterparts. Instead, EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is often the metric that matters most. EBITDA strips out non-cash expenses like amortization, so the impact of goodwill amortization on the numbers that matter to private company owners and managers is often minimal. This is a key reason why many private companies are open to the idea of amortizing goodwill—it doesn’t hit the metrics they care about most.

What Does It Mean to Amortize Goodwill?

Think of amortization as spreading out the cost of goodwill over time, like slicing a big cake into smaller, manageable pieces. Under the PCC alternative, private companies can choose to write off goodwill in equal amounts over ten years (or less, if that makes more sense for the business). Instead of an annual deep-dive to see if goodwill has lost value, companies only have to check for impairment if something significant happens—like losing a major customer or a big change in the market.

Why Would a Company Choose to Amortize Goodwill?

1. Less Hassle, Less Cost.  Annual impairment testing isn’t just a mouthful—it’s a headache. It means hiring valuation experts, crunching numbers, and making a lot of assumptions about the future. For many private companies, this is more trouble than it’s worth. Amortizing goodwill means less time and money spent on accounting, and more focus on running the business.

2. Predictable Expenses.  With amortization, you know exactly how much expense will hit your books each year. No surprises, no big swings in net income because of a sudden impairment charge. This makes it easier to plan, budget, and explain your numbers to lenders or investors.

3. Easier Financial Statements.  Not every private company has a team of accountants or access to valuation specialists. Amortization keeps things simple. The rules are clear, and the math is straightforward.

4. Closer Alignment with Tax Treatment.  Here’s where things get interesting: for tax purposes, the IRS allows companies to amortize goodwill over 15 years. Under GAAP, the PCC alternative lets you amortize over 10 years (or less, if justified). While the periods aren’t identical, both approaches use straight-line amortization, which means you’re spreading the cost out evenly over time. This can make it easier to reconcile your financial statements with your tax returns, and it reduces the number of adjustments you have to track between book and tax. It’s not a perfect match, but it’s a lot closer than the old impairment-only model.

What’s the Downside?

1. Lower Profits—At Least at First.  Amortizing goodwill means taking a chunk of expense every year, right from the start. This can make your profits look lower in the years right after an acquisition. If you have debt covenants or investors who care about net income, this is something to watch out for.

2. Not Always a Perfect Fit.  Amortization is a blunt tool. It doesn’t always match the real-world value of goodwill. Sometimes, goodwill holds its value for a long time; other times, it drops off quickly. The impairment-only model, while more work, can be more accurate.

3. Harder to Compare. If you’re comparing your company to public companies—or even other private companies that haven’t elected to amortize goodwill—your numbers might not line up. This can make benchmarking and explaining your results a little trickier.

4. You Still Have to Watch for Impairment.  Even if you elect to amortize goodwill, you’re not completely off the hook for impairment testing. Technically, you still have to perform an impairment analysis if a triggering event occurs—like a major loss of business or a big market shift. The good news? Because you’re steadily writing down goodwill over time, the risk that you’ll need to take a big impairment write-off after several years is much lower. The balance just isn’t as big as it would be under the old model.

5. Watch Those Loan Agreements. Some loan agreements are tied to earnings or profitability ratios. If amortization pushes your net income down, you could run into trouble with your lenders. Always check your covenants before making the switch.

Should You Elect to Amortize Goodwill?

There’s no one-size-fits-all answer. If you’re a private company that wants to keep things simple, save on accounting costs, and avoid the annual impairment scramble, amortization might be the way to go. But if you’re planning to go public, get acquired by a public company, or if your stakeholders care a lot about comparability, you’ll want to think twice.

Talk to your accountant, your auditor, and your lenders before making the call. The right answer depends on your business, your goals, and your audience.

Final Thoughts

Goodwill amortization is like choosing the scenic route instead of the expressway. It’s a little slower, a little more predictable, and a lot less stressful for many private companies. But, as with any accounting choice, it pays to know the landscape before you set out.

For additional guidance, please contact us.  Larson and Company has developed a suite of services specifically to serve the needs of companies of all sizes in a wide range of industries.