A Guide to Business Asset Liquidation

Rarely does anyone begin a business planning to one day sell off all their valuable assets and close the doors forever. And yet it happens all the time, with very little information available to assist proprietors in the actual sale. This simple fact is quite disconcerting when you consider that a significant portion of the owner's lifetime savings may be tied up in the inventory, and that converting this inventory to cash can be critical to his or her financial future.

The following tips are aimed at helping such proprietors liquidate their assets and exit their businesses on their own terms:

Consider Hiring a Liquidation Professional

Although this is your first, and hopefully last, liquidation sale, it's a routine occurrence for professional liquidators. Provided you have enough assets to warrant the use of one, they will (or at least should) more than earn their fees in the form of increased gross sales. Liquidators can usually start a sale in a relatively short period of time and develop a plan tailored to fit your business. But you shouldn't choose the first one you find on the Internet. Evaluate each of them carefully before making a decision.

Itemize and Prepare Your Assets

If for whatever reason you decide not to use a liquidation professional, preparing a current inventory of your business assets in preparation for sale is an important first step. In doing so, try to include photographs, serial numbers, and a brief description of the condition of each item; doing so might save you considerable headaches, especially if you're later asked to explain your sale to creditors or the IRS.

Keeping outdated or worn-out equipment, furniture, or inventory will only diminish the appeal of your marketable items, so why not donate them to an appropriate charity and receive a tax deduction? And if you have items that are leased with an option to purchase, don't just turn them back in — you might be able to pay them off for a few hundred dollars and sell them for a few thousand.

Finally, don't overlook your intangible assets like assignable leases and in-demand business licenses, permits, patents, trademarks, and customer lists.

Establish Liquidation Value

Liquidation value refers to the amount you can expect to recover in a forced-sale situation. Generally, this amount is at least 20 percent less than retail value. To establish the liquidation value of your assets, work with a qualified appraiser and obtain a written liquidation value appraisal before you entertain any offers.

Choose the Best Type of Sale

The next step is to decide what type of sale to hold. One, or a combination of several of the following types of sales, may be appropriate:

• Negotiated sale. Logical buyers include your competitors, customers, suppliers, and landlord. For example, if you own a restaurant, your landlord may be interested in purchasing your equipment so that the premises can be rented to a new operator at a higher rate.
• Consignment sale. If time is not of the essence and your assets are portable, a consignment sale, in which you turn your assets over to a dealer who will sell them and pay you an agreed-upon amount following the sale, might be for you.
• Internet sale. Online auction sites such as eBay are obviously a viable alternative. You may also want to consult a traditional auction company, some of which are able to accommodate simultaneous in-person and online bidding.
• Retail sales. Also referred to as Going-Out-of-Business Sales, retail sales are appropriate for consumer items like small appliances, gifts, gadgets, and clothing items people don't like to buy unless they can try them on first.

Choose the Best Time

It may seem obvious, but when all is said and done, choosing the best time for your sale will likely be the biggest determining factor in its success. Begin with the season, then select the best day and time. The season should be appropriate for the type of merchandise you want to sell. Swimsuit apparel, for example, will sell better in July than it will in December, when you'd be better off selling snowblowers.

Understanding these steps will not only help you recover as much money as possible, it will also help you achieve the freedom you need to pursue new endeavors.