When you plan for starting and running any kind of business, along with the profit making strategies, you also need to think about what is to be done, if the business unfortunately goes into a substantial loss and there arises a need for dissolution. In such cases, liquidating a business may seem to be the last option left for disposing off the business formally and safely, without having any liabilities to be paid to the creditors.
In corporate terms, business liquidation is referred to as an exit strategy. However, the need for liquidation can even arise in a situation when the company is nearing bankruptcy or is going in heavy losses. In this process, all the company assets are sold, and the cash that is received is utilized in repaying corporate debts and liabilities of the creditors or capital providers.
This debt repayment is done on the basis of priority with considering several factors. The assets that are to be sold include plant, machinery, real estate, equipment and tools, and inventory (if available).
Considerations for Liquidating a Business
It is not a process that can be thought of overnight. It needs a proper plan and considerations from all the parties involved in the management and running of the business. It is a last step to be followed in the dissolution of a company. It can only happen when the appropriate members and owners decide to close down the operations of the company.
After all the debs are paid off, if any cash remains; it is distributed among the members, owners, and shareholders. There are two types of liquidation, voluntary and compulsory; with the former one being initiated by the owners and shareholders, whereas the latter one is processed by any legal entity like the court of law.
Executing the Business Liquidation Process
To make the business liquidation process hassle-free, it is very essential that you take advice from a liquidator, an attorney, an appraiser, or may be also an accountant. These professionals will assist you to carry out the process smoothly. Then you will have to conduct a meeting with the top management, shareholders, capital investors, and other important members of the company to prepare a proper business liquidation plan.
Next, you have to work with the accountant and liquidator in accessing all the available assets, and ask the accountant to generate the necessary records and reports. Then, consult with the appraiser who will help you in determining a suitable value for your assets.
Also take advice from the attorney, in case there are any legal formalities involved. Prepare a list of the business debts and liabilities, and the creditors who are to be paid. Sell off the assets and keep a record of the finances available. The next step would be to discuss with the liquidator and prioritize the creditors.
Get in touch with the creditors in an appropriate order, and pay off your debts. If there are financial resources remaining after the repayment, the liquidator will then distribute the amount to the shareholders and owners. At this point, the business can be said to be formally dissolved.
If you do not want to hire individual professional advisers such as liquidators, attorneys, accountants; the best option is to take help from a liquidation company who specializes in dealing with such issues.