Setting clear, hard deadlines and proceeding in a business-like manner toward a closing is the best policy. Almost always the tantalizing possibility of being saved is out there in the form of a big bid, a potential buyer, or some hoped-for event. Human nature and reason tend to conflict in such situations, as owners hang on for dear life in the face of clearest evidence and lottery-like odds.
The earlier the owner realizes that liquidation cannot be avoided, the more resources will be present to liquidate with least pain. Good timing and sober judgment are important aspects of "success" in times of failure. THE LIQUIDATION PROCESS Deciding to Liquidate And to liquidate a business effectively is itself a business skill. While it is happening, those involved do not appreciate that they will gain valuable experience from the process-as people no less than as business persons. It is, furthermore, as painful for a manager liquidating a subsidiary or a division for a large company as for an owner liquidating his or her business. Many liquidations follow months, occasionally years of anxiety and agony as a business gradually fails, and liquidation is still painful. A jewelry shop, the assets of which are mostly unsold diamonds and gold, will do much better than a machine shop with most tools 30 years old or older.Ī liquidation tends to be a painful time in business life. The assets of a business may fetch as little as 20 cents on the dollar, possibly even less, all depending on the nature of the business and its inventory. Machinery, equipment, shelving, and communications systems arranged complexly for a purpose are more valuable as a group than taken individually. The assets of a running business include its clients and their purchases. There is no particular magic involved in this valuation. It's a good rule unless the business is actually losing money and cannot be turned around. It is a truism of business that a going concern is always worth more than its parts. This may happen voluntarily or involuntarily the owner may simply decide to stop doing business, puts a "Closed" sign on the shop or a message to that effect on his or her answering service, and proceeds to sell everything alternatively the owner finds him- or herself forced into liquidation to pay off a foreclosed loan or, alternatively, assets are insufficient to cover debt and Chapter 7 bankruptcy liquidation is necessary. Thus an owner selling his or her business for cash as a going concern is technically liquidating it-but in usual parlance the term is applied only to a situation where a business is closed and all of its assets are sold.
The unneeded departments and divisions are often closed with their assets sold or added to other divisions.Liquidation means turning fixed assets into liquid assets, namely into cash. Many businesses decide to close departments or merge with other companies.
Liquidation does not always have to be company wide and under bankruptcy, however. In many cases, there aren’t enough assets to pay off creditors, so many of the unsecured lenders are out of luck. In a bankruptcy, the court generally takes control of the assets in order to sell them at auction to pay off the outstanding liabilities. Liquidations are far more common in bankruptcies and situations where the business is closing because it can’t support itself with revenues than any other instance. What Does Liquidation Mean?īusinesses can liquidate their assets for any number of reasons, but the main two reasons are the company is failing and restructuring or investors want to leave the business. In other words, liquidation is the process of closing a business, paying off creditors, and giving the investors whatever is left over. Definition: Liquidation is the process of selling off assets to repay creditors and distributing the remaining assets to the owners.