Liquidation of a Business

Liquidation of a business is probably the last choice of harvesting because it is the least advantageous to the owner. Other means of exiting the company would be in the founder’s financial interest, such as selling outright or merging with another business. 

Not having a proper exit strategy will usually result in the business’s liquidation if the owner dies, takes another job, or opens a different company. Deciding on an exit strategy before you need one will give you the best outcome for gaining capital from your exit. If all else fails, some of the capital tied up in the business will be recovered by liquidation.

Typically, liquidation involves the sale of the physical assets of the business. It may raise capital for the purpose that the owner intends, but usually at a loss. Optimizing the sale proceeds is why the owner should make sure the equipment is in the best condition possible. It is essential to understand the value of your equipment or inventory. An appraisal can help the owner to know what to accept in the case of a retail liquidation. Auctions are a common means of liquidation. It is an easy way to recover the highest dollar value of your physical assets. In addition to auctions, negotiated sales are a means for liquidation. A negotiated sale is when both parties are willing to discuss pricing. Having one buyer for everything could save time and money by offering one low price to take everything off their hands.

It is essential to remember the intangible assets that you have worked hard to build up. One example is a customer database. A customer list could be valuable information for someone in the industry.

It would be wise for an owner, no matter what the means of liquidating their assets, to make sure the buyer understands that the sale is “without recourse.” Without recourse refers to the fact that the assets are sold “as is, where is (SBA.gov).”

There are liquidation companies that can help a business get the most money they can for their assets. Hiring such a company would be wise as they assist with the entire process, including marketing the assets’ sale. 

Since one will only receive a percentage of the actual value of the business’s assets, liquidation should be the last option of consideration. Having an exit plan from the start of your business will give you the best financial outcome in harvesting the business.

https://www.sba.gov/managing-business/closing-down-your-business/liquidating-assets+, Retrieved on 9/27/2020

Kagan, J. (2020), https://www.investopedia.com/terms/w/without-recourse.asp, Retrieved on 9/28/2020

https://www.bizfilings.com/toolkit/research-topics/running-your-business/exit-strategies/liquidation-as-an-exit-strategy, Retrieved on 9/29/2020