There are many instances where liquidation is the best or only practical choice for exiting your business.

Many tradespeople run their own business, which is just themselves, their tools, a vehicle and perhaps they employ some staff as laborers or casual workers.

Once they decide they no longer want to run that business, what do they have to sell apart from their tools and vehicles?

Most of their work might be residential with very few customers needing ongoing services. The goodwill or reputation of the business, therefore, has little or no value.

Businessowners close their doors and go out of business every day. Sometimes they have had enough of being their boss. They might have realized that they could do the same job for less effort and more income by being an employee.

Then again, the business may be facing financial difficulties and the owner realizes the futility of trying to trade their way out of trouble. Better to liquidate the business on your terms than must face bankruptcy on someone else’s terms.

To come out of liquidation with a good payday would require a business to have valuable assets to sell, typically in the form of land or expensive equipment. The name of the business may have some value and be attractive to new owners.

Good will is something regularly seen on financial statements. It is an intangible asset that reflects the value of things like a strong brand name, good customer relationships, good employee relationships, patents, intellectual property, size and quality of the customer list, and market penetration.

For example, if a plumber could prove that 50% of his customers needed his services at least once every year and 75% of the remaining customers needed his services at least once every five years, a value can be attributed to those figures.

You won’t find bad will on any company balance sheet, but if the business has been involved in something that created bad publicity, the value of any goodwill could be significantly eroded. Bad will could be due to illegal or immoral activities like lots of bad customer reviews, selling out-of-date products, being racially abusive to customers, fraud, etc.

Selling a small business owner when bad will exists is likely to have nothing of value apart from tangible assets.

In all liquidations, the money received must first be used to repay any creditors.

The remaining money goes to the owners.

In an ideal liquidation, the following occurs (and usually in this order):

• All bills are paid off.
• All taxes are paid, and the various levels of government are informed of the closure.
• Contracts, leases, and the like are fulfilled or formally ended.
• Employees are let go to find other jobs.
• Assets or inventory is depleted.
• No lawsuits are consuming money and time.
• Customers are placed so that they get needed goods or services.
• If needed, insurance is continued to cover unexpected claims after the firm closes.

Pros and Cons

The pros and cons need to be carefully considered before choosing a liquidation.

Pros

• It is usually straightforward; you don’t need to negotiate or merge your business.
• No negotiations are involved.
• There are no worries about the transfer of control.

Cons

• At most, the owner will get the market value of the company’s assets.
• Liquidation destroys the opportunity to realize the value of things like a client list, the owner’s reputation, and business relationships.
• Other shareholders may not be impressed with their share

In many cases, the owner will be better to try and find a buyer, particularly if the company brand has any value, if there is a loyal or sizeable customer base, and if there is a stable number of employees.

To find other alternatives to liquidation for your business, check out http://www.gr-us.com/