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Going out of Business? Here’s some Free Advice!

Whe you decide to close down your business, you’ll need to “liquidate” the business’s assets. In plain English, this means you’ll want to turn your remaining business assets, such as office equipment, tools, and furniture, into cash to pay your creditors—or in a best-case scenario, to put in your pocket.

There are several things you need to do before you call the auctioneer.

Identify the Business Assets to Liquidate

Make a list of the physical property your business owns, as well as any money owed to the business in the form of rent, security deposits, and unpaid bills (accounts receivable) you still expect to collect. Your list should include:

  • business equipment, such as computers, phones, cash registers, and credit card machines
  • office furniture, art, and supplies
  • vehicles
  • real estate
  • security deposits with landlords, utilities, or taxing agencies, and
  • prepaid insurance premiums you can get refunded to you.

 

For property, write down a description of each item or category of property, the condition of the property, and who technically owns it—that is, what money was used to purchase the property—your personal funds, a partner’s personal funds, or business funds.

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In addition to tangible property, you may be able to sell intangible property that your business owns, such as:

  • your commercial lease, if it’s at below-market rent or at a good location (but you’ll probably need the permission of your landlord)
  • contracts with suppliers at below-market rates
  • contracts with customers at profitable rates (you may need your customers’ permission)
  • works in progress that could have some value
  • your customer list and your company name (essentially, the goodwill your company has built up)
  • intellectual property such as copyrights, patents, and trademarks, and
  • remaining accounts receivable.

 

One of the things that we do that is a requirement is when we have your auction to liquidate these assets, we give you a record how you sold each piece of property (save copies of ads or Web listings), who ended up buying it,  and the amount you received.  Keeping good records of your property and what happens to it will protect you in case a creditor later questions your liquidation of assets or in case you have to file for bankruptcy. You will also need this information for your tax returns.

We Find Buyers for Your Business Assets!

We send notices and find buyers for property that is fully paid for and that you have not pledged as collateral for another loan.  We use our industry contacts, including appropriate suppliers and competitors, to find buyers. Competitors may also be interested in buying your intellectual property (trademarks, copyrights, and patents) and any works or jobs in progress, as well as your customer lists and company name or product names.  Everything can be sold at auction!

You might find buyers for fixtures, furniture, and equipment by listing them on websites like eBay, craigslist, or bid4assets.com. However, it is time consuming and most often than not, will cost you even more money than an auctioneer and his staff.   We also use some of the most well known online bidding platforms that specialize in  auctions for property in your industry; it does not matter if you are selling restaurant equipment, industrial machinery, high-tech equipment, construction equipment, and so on.  If you have numerous assets with significant value, contacting us sooner than later is imparative!

Don’t expect to get more than 80% of an assets value, at most. When you hire us, we have extensive knowledge as to what the approximate value of your assets, and can advise you as to what options you have available for your assets.

As to accounts receivable, don’t forget that they will be much less valuable after you close. So make a high-energy effort to collect them now, or sell them accounts receivable to a factor, or debt buyer, who will either buy your accounts receivable at a fraction of their worth or, for a fee, pay you a certain percentage of the debt up front and the rest when they collect it. (Get more information on accounts receivable factoring.)

When you hire us, you hire a fidiciary, and we can advise you as to what options are available in your situation.  We will always say not to leave money on the table!

Don’t cheat your creditors.

Do what you can to get a good price for your business assets—not just for yourself, but because you have a legal responsibility to your creditors to try to get fair market value for your assets. In particular, the directors and officers of an insolvent corporation or LLC (one whose assets are worth less than its liabilities) have a statutory duty to minimize losses to the company’s creditors. But no matter how your business is organized, you commit fraud if you give away or sell business assets at below market rates or put your interests ahead of those of creditors. In other words, forget about selling assets cheaply and pocketing the cash, or worse, giving away assets to friends or family for free.

Deal Separately With Secured and Leased Assets

It can be a daunting task.  And it can be worse if your creditors don’t budge.  But take a deep breath, and then roll up your sleeves.

Set aside any assets that you pledged as collateral for a debt or loan. You cannot sell these assets without the permission of the creditor; selling loan collateral before the loan is paid off is fraudulent and may even be punishable as a crime. You’ll need to speak to the creditor about how to handle the collateral if you can’t repay the debt—whether you will give it to the creditor as is or sell it with the creditor’s permission, giving the proceeds to the creditor.  When you contact us, we do the work for you.   We contact your creditors, fill them in on the situation, and then send them the notice of sale of assets, and then disperse the monies that have been gained for those assets to them accordingly.

Likewise, leased property belongs to the lessor, not to you. Your main options are to return the property or to “assign” the lease contract to someone else (the lessor will usually have the right to refuse an assignment, however).

You’ll want to try to get the secured creditor or lessor to settle for less than the amount you owe on the loan or lease.  Some of them won’t, but our auctioneers are experienced in negotiating with them on your behalf to settle these debits.

Get Prepaid Insurance Premiums Refunded

Request refunds on your workers’ compensation premiums and liability insurance premiums, if your policies’ terms allow it. Because businesses pay workers’ comp premiums in advance based on payroll estimates, workers’ comp carriers are accustomed to adjusting accounts each year to return overpaid money, and you should get a refund without a problem. With liability insurance, whether you’ll get a refund depends on the terms of your policy.

Getting Help Liquidating Your Company’s Assets

Some business owners don’t have the time, skill, or desire to sell off their own assets. If you find yoursef in this position, there are a couple of routes you can take:

  • Hire a professional auctioneer and hold a public auction.  You get the best price, and are out of the woods in less than 60 days. Auctions bring the people interested with cash, ready to go the day of the auction.
  • Pay a business broker a fee to sell off your assets. This can take an excruciating amount of time, as they sell to a smaller subset and price and wait.
  • File bankruptcy, in which case the a bankruptcy trustee will sell your assets and pay off your creditors with the proceeds. You can do this, however, in most cases selling everything by auction will raise the funds, and then the rest can be negotiated accordingly.
  • Assign your assets and debts to a company that specializes in liquidating businesses.  Some law firms take on assignments of assets and debts as well.

Once you’re done selling your business assets, if there is money left over after paying off your creditors, be sure to follow the rules for making a final distribution of cash to yourself and any other owners.

Disclaimer: Guides are submitted by readers and the views expressed belong solely to the author.

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Matt Price is a first generation auctioneer and REALTOR who has 12 years experience in selling online using the tools of yesterday, and today with simulcast auctions for personal property, real estate and municipal surplus. He has been on the forefront of marketing the goods since 1997 starting on eBay and moving off the platform in 2008. Now primarily selling through Price Auctions & Estates Website and Proxibid, offering live, online and simulcast auctions, and has been published in several magazines on subjects such as legalities of selling online, sales tax, and computer equipment.