Article

Emily Wilson
Emily Wilson 31 March 2020

Everything You Need To Know If Your Company Goes Into Liquidation

There are perhaps too many factors that can directly influence the success of a business. These days, competition in the market is the biggest challenge, especially for small businesses. We are surrounded by large chain stores, which are often able to set lower prices and offer discounts.

Everything is now available for online shopping, with most of sites offering services and products on a global scale. If an unfortunate case happens, and your business is simply not viable anymore, it’s better to learn about the liquidation process in advance. It may be devastating to even think about it, but the other options are going into personal debt or compulsory liquidation. Readiness is crucial! 

What does it mean?

The liquidation process can be very stressful for the owners, and having a detailed plan prepared can save you from dealing with many issues. We’ll help you understand the members voluntary liquidation process better, and explain the steps for this business exit strategy. Let’s define the term liquidation first. It’s a process where you are ending business as a final step, while you're selling your company assets, turning them into cash. With this money you can pay back your creditors’ investments and any other debts of your company. The list will surely help you, but it’s highly recommended to have guidance along the way. 

When it usually happens?

There are several situations that often result in choosing the liquidation process to end your business. First of all, it can happen when you want to retire. All the costs will be paid off, and if your company wasn’t in debt, you’ll end up with a certain amount on your savings account.

It can also be any other personal reason, which is not debt related. So if you’re planning to move out of the country, or try some other entrepreneurship idea, it’s best to choose this option. The worst one is having some debt and your business simply not earning enough money to cover the costs of production, employees, leases etc. anymore. 

The thing you need to understand is there is no shame in this, even in the last scenario. The market is competitive, and you’ve at least tried! But having a sober judgement and knowing when to put things to an end can save you both money and reputation. If you’re doing it voluntarily, you’re showing your creditors, vendors and everyone else involved you’re reasonable, and they will be cooperative. 

Which assets will go?

Okay, just to be clear - everything your business owns will be sold and turned into cash. So, starting from the equipment, which will largely depend on the type of your company, but surely every type has office equipment. Create a list of all computers, copiers, printers, projectors, sound systems etc.

Proceed with another list of furniture, and count the chairs, desks, couches, closets and even shelves. Then goes the other type of equipment, for example, used in the warehouse, such as forklifts etc. And when you’ve done all that, print out the list of all the remaining products you store.

 Every company is different, so let this guide you, but think of any other items that may be specific to your business. It is highly recommended preparing this before consulting with a lawyer about the following steps. The impression will be much better! Ask them to help you with creating warranties for every piece of equipment you’ll sell, in order not to seem desperate, but rather professional. 

And what now?

Ask your lawyer to recommend a good appraiser. Bear in mind, the prices will probably be around 20% lower than in the retail sale. It’s a specific situation, so be prepared for this. There are several options you can choose for the type of sales, and you can even choose several. If you are providing products, you should consider a going-out-of-business sale. Lower the prices and offer some deals, such as buy one, get one free etc. Dedicate a certain week and sell as many products as possible! Another way is through internet sales, which is always popular. 

If you are in need to sell items quickly, you’ll want to consider public auctions and negotiated sales. The main distinction is that with the second option, only a limited number of people are involved in the process. It is more discreet, so if you’d prefer confidentiality, this is a way to go.

There is another option, which is only viable if you are in no hurry for the money, and it’s choosing consignment sales. This basically means giving your goods to an entrusted third party, who is willing to continue with selling them. You are not selling the items, but rather selling through them. This arrangement is based on a commission, and that third party will keep a previously established percentage of the sales. 

Conclusion

It is essential to get familiar with all the options and possibilities during the liquidation process. For example, when it comes to the voluntary type, you’ll probably be in for some great tax deduction. This is why having guidance to help you understand the issues will ease the process and decision making.

You’re liquidating to get the most profit, so you need to explore all the advantages and disadvantages of each option. The best thing is to work on this with the help of your accountant and lawyer. Put every outcome on paper and discuss the best combination for different types of assets. 

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