When 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.
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:
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.
In addition to tangible property, you may be able to sell intangible property that your business owns, such as:
As you liquidate these assets, you'll want to record on this list how you tried to sell 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.
Next you'll want to find buyers for property that is fully paid for and that you have not pledged as collateral for another loan. Use your 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.
You might find buyers for fixtures, furniture, and equipment by listing them on websites like eBay, craigslist, or bid4assets.com. Also search for websites that specialize in auctions for your industry; there are sites that specialize in restaurant equipment, industrial machinery, high-tech equipment, construction equipment, and so on. If you have numerous assets with significant value, contacting a business broker or professional liquidator might be a good idea.
Don't expect to get more than 80% of an assets value, at most. If you have items that will be hard to sell, such as worn out equipment and office furniture, consider donating them to charity for a tax deduction.
As to accounts receiveable, 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.)
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.
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.
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; see Nolo's article Paying Off Debt When You Go Out of Business.
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.
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:
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.