Store Owner Turning Closed Sign

According to a study published by the Life Insurance Management Research Association (LIMRA) in 2008, 40% of businesses are forced into liquidation because they haven’t taken actions for succession or exit, and this was prior to the baby-boomer business-owner transitions!

It’s probably not the way that most business owners envision ending their business careers when they start their business, but it may be necessary if an external buyer cannot be found for the business and an internal sale is not possible. It may be your only option if you fail to plan. Unfortunately, liquidating as a last resort is often akin to having a fire sale for your business or getting pennies on the dollar. Shutting the doors and liquidating is often the default transition option for those who leave their futures to be determined by death, disability, or some other catastrophic event.

Liquidation essentially means closing the doors and selling off your business assets. Assets are generally any physical objects or intellectual property used in running your business. It can be a much more straightforward and simple than selling or transitioning the business, but do you really want to see the business you’ve worked so hard to build be sold off piece by piece? Here are a few things to keep in mind:

  • Liquidating will result in the lowest value for your business.
  • You’re likely to get only “market value” for the assets and this will depend on the condition of your assets and the state of the current market.
  • Any earnings from your company’s assets must first be used to repay creditors.
  • You will need to split the remaining earnings among all shareholders.
  • Your client and vendor lists may be valuable but your informal business connections are virtually worthless.

If you allow enough time and plan ahead, you will probably have several business transition options. Conversely, the less planning and the less time you have, the fewer your options. Don’t leave your future to chance. Start the planning process now, even if you do not wish to leave your business for five or 10 years. A solid transition plan will allow you to positively impact the outcome as much as possible. Be proactive and don’t procrastinate!