The Asset Liquidation Process
When is the time to consider the asset liquidation process? The three main reasons businesses consider liquidating assets are 1) when assets are no longer needed (surplus assets), 2) the business needs additional working capital, or 3) to satisfy creditors. Before liquidating assets it may be helpful to consult your lawyer and accountant or other tax professional for assistance in planning the liquidation. Also, remember that if you are liquidating assets to satisfy creditors you may need to obtain their consent to do so.
The Asset Liquidation Process – A Step by Step Guide
Step One: Identify the Business Assets to Liquidate With an Inventory List
Inventory the assets your business owns and wishes to liquidate. Your list should include a detailed description of each item, photograph, purchase information, condition, warranty certificates and repair records, if applicable. If some items need painting, repair or general cleaning, take care of it at this stage to maximize sale prices.
As you liquidate these assets, you'll also want a record of the marketing process, purchaser, and the amount received. Keeping good records of the sale of your property will protect you in case you file for bankruptcy or a creditor later questions your asset liquidation process. You may also need this information for your tax returns.
Step Two: Identity and Consider your Options to Realize the Best Value for your Assets
There are multiple options you should consider in order to get the liquidity you need from your assets. You may consider conducting an auction for your assets, or you may decide to liquidate the assets (for the difference between the two methods see "Liquidation Sale vs. Auction Sale: What's The Difference?". Whatever you decide may depend on the specific situation of your assets, their condition, variety, quantity, the time you have to dispose of them, macro market conditions and more.
Step Three: Establish the Liquidation Value of Your Asset
Liquidation value is the anticipated price which an asset is likely to bring under certain conditions including:
Consummation of a sale within a severely limited future marketing period.
Large quantity of items prevents achieving retail value by individual listings and marketing of items.
Current actual market conditions for the property interest appraised.
Buyer acting prudently and knowledgeably.
Motivated seller who is under extreme compulsion to sell.
Limited marketing effort made and limited time allowed for completion of sale.
Generally, due the existence of the above mentioned conditions, the liquidation value is considerably less than the Fair Market Value (retail value) in which both parties are typically motivated and neither is under compulsion to act. To establish the liquidation value of your assets, work with a qualified appraiser. Obtain a written liquidation value appraisal before you consider any purchase offers.
Step Four: Plan, Plan and…Plan
After you identified your options, and established the liquidation value for your assets, you should have a proactive strategy for recovering your asset value. Assemble the right team in your organization of everyone who needs to be involved (legal and office management staff, and even C-level executives). Evaluate the costs involved in your asset disposition plan as well as the potential costs (legal and otherwise) of not doing it. Create an aggressive, yet realistic timeline for completion, and methodically begin the process. Lastly, consider getting help from a third-party asset recovery and disposition expert with the expertise you need to address your asset disposition needs. It not only minimizes the organizational disruption, it also outsources the process to a qualified third party who has been involved in the exact process many times in the past.
Step Five: Execute a Clearly Defined Strategy for Disposing Your Business Assets
Keep your eye on the prize and own the process from tip to tail! Your plan can be great, but many processes fail because not enough business owners engage in the process and follow-through.
Be proactive, and use your industry contacts, including equipment dealers, competitors and strategic suppliers, to find buyers.
You might find buyers for your equipment by listing them with a liquidity specialist like Rabin.
If you have items that will be hard to sell, such as very old, worn out or damaged equipment, consider selling them for their scrap value or donating them to charity (if possible) for a tax deduction.
Rabin is an international company that specializes in creating liquidity for complex manufacturing facilities with idle or marginally productive assets. Rabin’s operations include selling entire plants, multiple plant locations, or surplus individual items by auction or liquidation and much more. Past auctions include recognizable names such as Hostess, Braniff Airlines, Montgomery Ward, and the Railway Express Agency. Please contact us to discover how we can help you with our professional asset liquidation process.