Liquidation: Turning Business Assets into Cash
Liquidation is the process of closing a business establishment, including the sale or disposal of assets and the pay-off of liabilities. Any monies left after these actions revert to the business owner.
Reasons to liquidate vary. The most common are: lack of profitability, losses at the shareholder level, tax penalties, and the inability to find a buyer for the business. Some owners simply want to retire, and liquidation is the most direct route. In any case, liquidation can be a lengthy process.
Business liquidation authorities advise taking a systematic approach to the closing of an enterprise, an approach that includes on-going, detailed consultation and support from legal and financial professionals. The following steps should be taken to facilitate the process:
- Consult with the company lawyer and accountant before starting the liquidation process. These professionals provide guidance and information regarding debt and creditor questions, stockholder issues, and pertinent filings and documentation required by local, state and federal agencies.
- Research the firm’s value. A liquidation sale involves time and energy, and in some cases, the net profit may not warrant the bother. Other exit strategies do exist, but it’s best to discuss all options with the company attorney and accountant before making any move.
- When liquidation is a "go," hire a pro. Given the emotional and physical toll liquidation can take on management and staff, most experts strongly advise hiring a liquidation specialist to coordinate the process.
In addition to pricing the firm’s inventory, this professional handles the sale’s details and paperwork, helps company employees through the shutting-down phase and informs the business community through the media. When an owner opts not to hold the sale on company property, a liquidation specialist can also locate an alternate site.
- Inform creditors of pending liquidation. It’s wise to discuss plans with creditors prior to going public regarding liquidation. The truth is that creditors may have a claim on profits resulting from a sale, so they have a right to know what’s happening.
- Take proper security measures. Unfortunately, once an owner announces a pending liquidation, disgruntled customers, clients and staff can pose a threat, particularly to inventory slated for sale. Law enforcement professionals advise changing locks, gathering keys, and in truly high-risk environments, hiring a security guard.
- ALL SALES ARE FINAL. This means taking a hard line with buyers, a tactic that, in the end, benefits the company owner. Allowing returns is a bad idea. So is volunteering to honor warranties on sold inventory. These acts of goodwill force a soft-hearted owner to deal with unhappy buyers and money woes well into retirement. To make sure customers understand, post the terms of sale in prominent locations throughout the sale site.
Liquidating a business requires tact, compassion and compliance with laws and regulations at all levels of government.
Before deciding to liquidate your business assets, talk to your company legal counsel and tax attorney for good advice and the development of a sound exit strategy for all.