Updated: Jul 20
If you’ve ever considered parting ways with your company, you’ve likely considered both options. But which one is best? Is your business transferable and able to be sold to a new owner? Or should you liquidate what you own and close your doors?
Before we look at the specifics of both options, it’s important to note that your business may be more sellable than you think (see: Someone, out there may want to buy your business.) Keep that in mind as you consider which option is best for you.
Here’s a closer look at the difference between liquidating your business and selling it to a new owner.
What is Liquidation?
If you’re considering liquidating your business in an effort to close it, this means you’re likely looking at voluntary liquidation. Voluntary liquidation means you’re choosing to sell your assets rather than being required to. Assets such as property, equipment, and inventory can all be sold on the open market in exchange for cash or cash equivalents.
If you’re considering liquidating your business, here are a few pros and cons to think about:
Pros of Liquidation
Faster access to cash. Liquidating allows the business owner to convert assets into cash quickly. This is helpful if you require immediate funds for your business.
A simplified process. Compared to selling a business, liquidation typically involves a simpler and less time-consuming process. It doesn’t require finding a buyer, negotiating a deal, or transitioning ownership.
Debt settlement. If you’re potentially headed toward bankruptcy, liquidating a business can help settle outstanding debts and obligations. The SBA recommends working with your lawyer and accountant before determining tax implications.
Closure and peace of mind. Liquidation can provide closure for you if you’re ready to move on. It lets you wrap up operations and focus on other endeavors without ongoing responsibilities or liabilities.
Cons of Liquidation
Reduced returns. Liquidating assets usually means you’ll receive the lowest net value. Because there is no goodwill involved in selling assets, you won’t receive the same financial returns as you would from selling your business as a whole.
Losses on assets. It’s important to consider that the value of liquidated assets may be lower than their original purchase price or book value, leading to a loss.
Time and effort. While liquidating assets can be simpler than selling your business, it can still take time and effort. You will still be required to evaluate, market, and sell each asset or find someone to help you.
Employee displacement. Once you sell your assets and close your doors, your business will cease to exist, and your employees will be left looking for work. When selling your business, employees have a chance to stay on under the new ownership.
Additional expenses are left unpaid. Be sure to think about any real estate your business uses. Even if your assets are sold, you may still have expenses on an ongoing lease or unoccupied real estate.
It’s important to note that the pros and cons of liquidating your business can vary depending on your specific circumstances and goals. Seeking professional advice from a business broker can help you make a wise decision.
Can I Sell My Business?
As mentioned, you may have more options than you think when selling your business. Even if your business isn’t the most profitable, your client lists, processes, software, inventory, and other goodwill may be valuable to a competitor.
However, it’s also important to note that sometimes a business is difficult to transfer and may not be able to be sold as a whole. When considering whether or not your business is sellable, start by asking yourself the following questions:
What does the financial performance and profitability look like for your company? Potential buyers are interested in purchasing a business with solid growth potential.
Is there a market for businesses like yours? Be sure to think about industry growth and competition.
Does your business have a loyal and diversified customer base? With a growing customer base and a strong customer retention rate, your business becomes more marketable to interested buyers.
Can your business be easily transferred to a new owner, or does much of the day-to-day work and processes rely on you, the business owner? Buyers are looking for a business that can provide a seamless transfer of ownership. Be sure you have documented processes and procedures.
Do you know how much your business is worth? Understanding the valuation of your business is critical to determining whether you should liquidate or sell. Click here to request a consultation to discuss an assessment of value.
Meeting the criteria above gives you a strong probability that your business can be sold. However, finding a buyer and successfully selling the company can still be a complex process. An experienced business broker can partner with you to help you sell your business.
Pros of Selling
Higher returns. Selling your business as a whole can often yield higher financial returns than liquidating assets individually. Additionally, buyers are often willing to pay a premium for an established company with an existing customer base, brand reputation, and growth potential.
The transition of responsibilities. When selling your business, you can start transitioning your responsibilities to the new owner. This can give you time to slowly part ways with your company, all while freeing up time to focus on new endeavors.
Continued legacy. Selling your company gives you an opportunity to pass on the legacy and continue the business.
New expertise and resources. Selling your business to a buyer who can bring in additional expertise or updated systems and resources gives the business a chance to grow.
Cons of Selling
Finding the right buyer. When selling, you’ll need to find a suitable buyer who values the business fairly and has the financial capability to complete the transaction. This can be a challenging and time-consuming process.
Higher levels of uncertainty. During the sale process, there is a level of uncertainty regarding the outcome and confidentiality. Additionally, sensitive business information has the potential to be released, which could affect employees and the value of the business.
Potentially complex and lengthy process. Selling your business can take time. From finding the right buyer to finalizing negotiations, it will likely be some time before you receive the profits you desire from selling your business.
Each situation is different. What works for one business owner may not work for you. When deciding whether you should liquidate or sell, there are many factors to consider, including your specific exit plan, your business’s financial outlook, and market conditions. Contact us today to determine the best option for you.