Six Ways to Make the Liquidation Process as Seamless as Possible
You probably never anticipated you’d be in a position where you would need to liquidate your assets.. You may be in need of cash to pay off some or all of your debt, you may want to monetize your unused, surplus, or underperforming assets, you may find that you need to close one or more of your business operations, or you have filed for bankruptcy and you are legally required to get fair market value for your assets to compensate your creditors. Whatever the reason may be, it will be important to find a liquidation strategy that can help you effectively meet your goals.
Unfortunately, most business owners—including small family businesses, large corporations, and everything in between— find themselves unprepared to liquidate. After all, it is very likely that asset liquidation was not an original component of the company’s business plan, meaning the need for liquidation will often come as a last-resort option.
Regardless of the circumstances, there are ways to help make the liquidation process run smoother and yield the highest return for the assets. With the right guidance, your business can conduct a successful liquidation and maximize its total value.
1. Start by Recognizing Your Liquidation Needs
The liquidation process won’t look the same for everyone. This is why it is very important to identify the unique factors triggering your business’ need for liquidation and to avoid the temptation to look for a one-size-fits-all solution.
There are plenty of reasons a business might need to liquidate—especially in this rapidly changing economic and industrial environment. In some cases, the need for liquidation might be personal, such as the founder of the company deciding to retire. In other cases, the need for liquidation might be more transformational. For example, suppose that a publishing company decides to abandon its traditional print magazines and will instead focus on establishing an entirely digital presence (a common decision these days). In this case, the company will probably want to sell its printing presses, convert them into cash, and then reinvest this cash into new technology and other resources. And of course, due to insolvency, there are instances where a company needs to close its doors and liquidate all assets. Because of their unique needs, each of these different scenarios will dictate the timing of the project, method of liquidation, and execution strategy. An experienced liquidator can help align your needs with the best approach.
2. Obtain an Accurate Asset Evaluation
Determining the value of your assets can be a tricky proposition. As you may already know, there are various types of valuation for a business. Some valuations look at past or potential earnings, competitor gross earnings, or book value, among others. In terms of valuations for your assets, you may come across these types:
- Fair market value – usually used for tax or real estate purposes, often is more formulaic than “true”, “market comparison” value.
- Liquidation value – essentially what your assets would sell for if listed for sale, final valuation is often dictated by timing.
- Book value – value of your assets on the balance sheet
- Salvage value – the assets cannot be used or repurposed and you are compensated for their scrap value
One of the most common mistakes made by companies hoping to liquidate is conflating an asset’s book value with its liquidation value. Your company will most likely have an approximate value for each of its assets on the books. But regardless of whether this value was determined by the straight-line depreciation method—or any other method—that doesn’t mean the figure on the books is what you will be able to get for it on the open market.
There are quite a few ways to find the “true” liquidation value of an asset. Looking at recent auctions with similar equipment, will give you an idea of how much of your initial investment you can expect to recoup. However, if you have hundreds or thousands of various assets, you may feel overwhelmed and outside your comfort zone when making these determinations. An experienced asset solutions team with used equipment sales data can achieve this in a much more efficient and effective way. These companies are actively buying, selling, and valuing assets on a daily basis, and therefore can provide a more accurate range of value for your consideration.
3. Diversify Your Liquidation Options
Businesses trying to liquidate on their own, especially if they are working on a tight timeframe, might choose to accept the first offer that comes their way. However, like with many things in life, taking the first option and not exploring other opportunities may significantly diminish your return.
As mentioned earlier, the “best” liquidation solution is unique for each business and will depend on a variety of factors, such as scope, industry, asset types, location, overall market conditions, timing, and liquidation needs. This means that, in some cases, the best possible solution might be selling the asset directly to a private buyer. In other cases, it might involve utilizing an auction house. Working with a trusted and knowledgeable liquidation partner who can present you with more than one option means you’ll be more likely to sell your assets quickly and sell them at a truly fair price.
4. You May Have More Value Than You Know
During the liquidation process, it can be tempting to only focus on your largest assets. You might assume that some of your “smaller” assets, especially intangible ones, are not worth as much and you might decide to simply right them off. However, doing so may mean you may be missing out on significant recoverable value. In addition to real estate and manufacturing equipment, be sure to consider your:
- company name
- intellectual property
- IP addresses
- contracts for ongoing work with suppliers and/or customers
- current customer lists
- accounts receivables
- raw materials
- work in progress
With a comprehensive list of everything you currently own, you will be able to truly maximize your liquidation value.
5. Be Willing to be Flexible
We can’t emphasize this point enough: the liquidation process will always look a little bit different for each business. Your expectations of the process may not align with reality for various reasons, it’s important to allow for contingencies to ensure the liquidation is able to move forward. Refusing to adjust your approach can create costly gridlocks and negatively affect recovery value.
So, what does flexibility mean in this case?
To start, being flexible means accepting dynamic solutions. We’ve already discussed how there are multiple different ways to liquidate an asset, including private buyers, turnkey solutions, auction houses, and more. If you are hoping to sell multiple different assets, you might need to access each of these different outlets in order to maximize your total liquidation value. An experienced liquidation provider will know which method is best for your specific circumstance.
More often than not, companies want to liquidate as quickly as possible and set very narrow time constraints. However, it is important to understand that allowing at least 60 days for the completion of the project will provide ample time to prepare the aesthetic of the facility, stage the assets by category, promote the sale in the marketplace, and ultimately remove the assets from the site. In most instances, the more time allowed, the more value you will be able to recover.
Another serious hindrance to a seamless liquidation is setting unrealistic reserve prices on specific equipment. The market is continuously in flux, and specific industries may be more active at certain times and not others. Perhaps the assets you have for sale are currently in abundance in the marketplace, meaning, the machines are competing against each other and buyers have many choices. These industry conditions will certainly be in the buyers’ favor and result in a lower return. For whatever reason, select assets will sell for less than you expect. If you decide to retain the assets to try to recoup a higher value, you may run into unexpected costs and complications, especially if your timing is dictated by your lease obligations. The cost of dismantling, transporting, and storing the assets to a different location while you search for buyers willing to pay more, could diminish any potential returns.
6. Work with an Experienced Team
As suggested, most business owners—even those with lots of experience running a large company—are ill-equipped to handle the ever-changing liquidation environment on their own. By taking on responsibilities outside of their areas of expertise, they can very easily end up losing out on substantial amounts of equity.
It is our recommendation to hire an experienced and trusted asset solution provider and yield to their expertise. Companies sometimes feel they are the ultimate authority when it comes to their assets and will act as a backseat driver throughout the liquidation. However, this will cause delays and potentially hurt the bottom line. If you have done your due diligence and chosen a reputable liquidator, let them lead the process and bring in the best possible outcome.
Integra Asset Solutions is here to help your business achieve its short-term and long-term liquidation objectives. We are committed to helping each of our clients find the comprehensive, personalized liquidation solution they need.
We’d love to learn more about how we can help your business. Contact us now!