Selling vs. Liquidating Your Business

April 25, 2018Exit Strategies, Insights

Every honest, hard-working entrepreneur deserves a successful exit when they’re ready to move on to the next chapter in life. However, not every entrepreneur has a business that can be successfully sold. I know you don’t want to hear this, but sometimes, simply winding down is a smarter, more rewarding exit than selling.


Is the Business Salable?

The bad news is that selling your business is not as easy as you might think, even if you have done well for yourself for many years. The good news is that figuring out whether you will be able to sell your business is very simple. It all boils down to transferability: could and would your business continue to thrive under a new owner? This is a matter of to what degree the business revolves around you specifically, as in your relationships, reputation, skill, etc.

I discussed and illustrated this crucial concept in my previous article, What Makes a Business Salable? Click over to that piece for the cold hard truth on transferability.

If Not Consider, Liquidation

A real estate agent sells a house, which is a fixed asset. When a business liquidates, a business agent sells the fixed assets—inventory, receivables, fixtures, and the like—in the same vein. Owners who do not have transferability in their business are typically best served by liquidation. For example, if you have five machines worth $100k a piece, I can sell those machines. People can see them, test them, and buy them in an auction for, say, $75k. It’s fast cash for your assets.

The X Factor: Goodwill

The challenge in selling a business is goodwill, which is an interesting and subjective dynamic. Anyone can sell fixed assets and cash out. If you have $1.5 million worth of trucks and equipment in your business and you’re liquidating, it doesn’t take a biz whiz to fetch you somewhere near $1.5 million in the sale of those assets.

But, with goodwill, the buyer is purchasing your brand name, processes, personnel, and all of the other factors that make your business successful. Putting a dollar figure on that value and then selling it requires finesse and differentiates selling from liquidating. With goodwill, your $1.5 million might be more like $1.7 million or $1.8 million. If there is no goodwill, then we are solely and purely liquidating.

Liquidation is Not a Failure

Let me say that again – liquidation is not a failure. While it should be your last choice, it is by no means a last resort. When you think of a last resort, that implies something unfavorable. When liquidation is the only option left, it really becomes pretty ideal. Liquidating presents the least risk, because you don’t have to worry about selling your business and having the buyer come back to sue you over a liability. Plus, you don’t have to move mountains to make your business more salable.

If you’re looking to break down your business quickly and efficiently, with a financial reward at the end, liquidating is a win. You were able to live the entrepreneurial lifestyle, and perhaps afford much more. Don’t be so caught up in the negative connotations that you neglect to recognize both your long run of success and hassle-free opportunity to move on.

I’m not trying to talk you into shutting down instead of selling your business, I promise. Before you get your heart set on anything, contact Exit Consulting Group and let us advise you on an exit strategy that—when you’re ready—will enable you to maximize your return all on the blood, sweat, and tears you have poured into building your successful business.