When you decide to close down your business, you'll need to "liquidate" the business's assets. In plain English, that means turning 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.
You can follow these five steps to liquidate your business's assets.
There are two categories of property: tangible and intangible. Dividing your business's assets into these two groups can make them easier to liquidate. You might be able to find a single buyer, but many times a buyer will only be interested in taking on certain kinds of assets.
When it comes to tangible and intangible property, you'll want to write down:
Whether they're tangible or not, as you liquidate assets, you'll want to record on your list how you tried to sell each piece of property. For example, you should save copies of ads or internet listings, plus 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'll also need this information for your tax returns.
Here's more information on the two types of property to help you document everything.
Make a list of the tangible property your business owns, as well as any money owed to the business in the form of rent, security deposits from tenants for lost or damaged property, and unpaid invoices (accounts receivable) you still expect to collect on. If you've got any outstanding bills that you've given up collecting on, you can mark them as losses and an expense.
Your list of tangible property should include:
In addition to tangible property, you might be able to sell intangible property that your business owns. Make sure to list out this kind of property, too.
Again, intangible property is any property that cannot be physically seen, touched, or easily measured and converted to cash, such as:
Next you'll want to find buyers for property that you've fully paid for and that you haven't pledged as collateral for another loan. Use your industry contacts, including appropriate suppliers and competitors, to find buyers.
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.
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 you can sell your accounts receivable to a factor (also known as a "debt buyer"), who will either buy them at a fraction of their worth or charge you a fee to collect them on your behalf.
Don't expect to get more than 80% of an asset's value, at most. If you have items that will be hard to sell—for example, worn-out equipment and office furniture—consider donating them to charity for a tax deduction.
Because they work in the same industry, competitors might be interested in buying your business's intangible property, such as
If you're interested in selling some of your business's assets to yourself, you need to first make sure you can. Look back at your company's organizing documents—for a corporation, the articles of incorporation and bylaws, and for an LLC, the articles of organization and operating agreement—to make sure there's nothing preventing you from personally buying company assets. (You won't be able to sell yourself any property that's leased or currently used as collateral for a loan or debt.)
If you can sell business assets to yourself, you'll need to buy them at a fair market price. Your business will also need to pay taxes on the sale. In some instances, you might be able to donate an asset to yourself. Check with an accountant or tax attorney before making the transfer.
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 legal duty to minimize losses to the company's creditors.
But no matter how your business is organized, you could 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 secured debt or loan. You can't sell these assets without the permission of the creditor; selling loan collateral before the loan is paid off is fraudulent and might 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'll give it to the creditor as is or sell it with the creditor's permission and give 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 creditor or lessor to settle for less than the amount you owe on the loan or lease. (See Paying Off Debt When You Go Out of Business for more.)
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 yourself in this position, there are a few routes you can take:
Once you're done selling your business assets, if there's 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.
You have two important obligations when liquidating your assets: financial and legal. Depending on how comfortable you are with your financial and legal situation, you could work with an accountant, an attorney, or both.
On the financial side, working with an accountant from the beginning can help you properly track your assets as you sell them. They can also give you a clear picture of your business's final numbers and make it easier to file taxes.
On the legal end, a lawyer can help you organize your assets so you know when and how to sell them, and to whom. With a lawyer's guidance, you can make sure your business's closing is above board.
But if you're confident working through the steps in this article without additional help, you could do it all yourself.