For many small business owners, liquidating assets is often the best or perhaps only feasible method of exiting their businesses, especially retail businesses.
The reasons for this are numerous: Your heirs may want nothing to do with a takeover or succession plan. They have been too close to the business for years and know the 24/7/365 routine required to be successful in many small businesses. And they’re attracted to the high salaries and benefit packages offered in the corporate world. Or they simply are not capable of continuing the business.
Moreover, your business is at least solvent or near-solvent, so bankruptcy is not an option. And even if you were near or at insolvency, you’d probably find it preferable to liquidate your assets and negotiate amounts owed to your creditors, while at the same time avoiding the stigma of bankruptcy.
And finally, you have come to realize that selling a business with significant assets is much easier said than done. Potential buyers are few and seldom truly serious. Most with the required assets and credit lines required to buy your business will not want to invest for the same reasons your heirs have declined the opportunity. The vast majority will not pay for goodwill or “blue sky.” They will discount your inventory and pay far less than cost. Most prefer to purchase their own new assets (equipment or inventory) and start a new business rather than buy an existing one.
Liquidating Your Business
So just what is the liquidation option? It is the direct conversion of assets to cash by selling them to a user/consumer. There are generally three categories of business that will liquidate assets:
Businesses with assets used indirectly in the production of income
- This generally includes the furniture, fixtures and equipment (FFE) of a service business, such as insurance agencies, attorney’s offices, etc. The liquidation value is extremely limited and can usually only be sold to used office equipment dealers, although an auction is sometimes viable.
Businesses with assets used as tools in the direct production of income
- This would include restaurants, manufacturing and construction companies. These assets can be sold to similar types of businesses, sold or consigned to used equipment dealers, or liquidated with the assistance of an industry-specific auction house.
Businesses whose assets directly produce income
- These are retail storefront businesses and, for our discussion, are independently owned and operated.
- Independent stores, apparel and shoe stores, sporting goods stores and furniture stores are in this category.
- Public companies and multi-unit operations, like major chains such as Target, Staples or Home Depot, also fall into this category.
- Amazingly enough these companies often wait to liquidate until they are bankrupt!
- By liquidating their “losers” and focusing on their “winners,” both large and small chains could avoid insolvence.
- They usually wait until it is too late.
Liquidating Retail Inventory
Liquidating retail inventory is challenging. The entire or majority of the owner’s lifetime savings may be tied up in the inventory, and converting this inventory to cash is critical to the owner’s financial future.
To achieve the best results, Store Closing/Going Out of Business firms are available with experience in conducting “going out of business” sales for virtually all types of retail stores. These firms are typically classified as consulting firms. And the liquidation sales they conduct may come in several cloaks: Quitting Business Sale, Total Liquidation, Going Out of Business Sale, Retirement Sale, Creditor Sale are just some of the titles associated with these sales.
Best Approach
As with any method of exiting from your business, a liquidation should be approached with professional assistance and some important guidelines. Most importantly, you must realize that, even though liquidating is still retailing, the strategy and techniques used are very different from that of an ongoing retail operation: The sale must be as short as possible to limit overhead expenses. The sale must be conducted during the proper time of the year.
Markdowns must be calculated for each class or department in your store. An easy but effective price markdowns method is a must. Determining the initial markdowns, the timing and amount of later markdowns is critical. A promotion program must be developed that will support the actual sale and closing of the store. A detailed “A to Z” business plan must be developed for the sale.
Ultimately, there is very little information easily available to assist you in conducting a liquidation sale. Each sale is different, and textbook solutions for individual stores do not exist. For these reasons, you should consider using a liquidation consultant.
Store Closing Consultant
Using a professional has its advantages: They will (or at least should) more than earn their fees because of the increased gross sales and the lower overhead associated with their mentoring. They have liquidated many stores and this is not a first-time event for them, as it would be for you. They know how to apply initial and follow-on discounts, and develop a promotion plan to support the entire sale. Rarely does a problem arise that they can’t solve.
Exiting your business by liquidation can be a very rewarding experience, but you must decide whether to do it yourself or hire a consultant. If you decide to hire a consultant, contact several (try searching for “quitting business,” “going out of business,” “business liquidation,” “liquidation consultant,” “exit strategies” on the Internet) and interview each of them extensively, both through written and telephonic communication as well as a face-to-face meeting.
Remember, this is a one-time event and you cannot afford to make costly mistakes! Call CCH Consultants today 520-305-9693.