Even in a busy and lucrative market, a lot of businesses simply do not seem to be able to find their feet and end up closing down as a result. When this happens, owners need to enter into the liquidation process and doing this can be incredibly difficult. Financial experts can help owners make informed decisions about the best way that they and their business can move forward. On top of that, they will be able to assist when it comes to valuing a business throughout the liquidation process, as this is very important when it comes to paying back creditors as fully as possible and getting as much for your business as you can. This article is going to talk in more detail about the realisation of assets and how the assets in your business will be valued throughout the liquidation process.
How Can You Determine Liquidation Value?
One of the most important questions that will be asked throughout the liquidation process is: How much is this company worth? The answer to that question will determine the way forward massively and as such, it is one of the first things that administrators and liquidation experts such as Simple Liquidation will consider. The majority of business valuation experts will calculate a company’s value as a going concern; however, certain financial trends will also play a part. The likes of a recurring net loss, declining sales and severely reduced liquidity will suggest that a business and its assets will likely be more valuable if liquidation takes place sooner rather than later. The liquidation value is mostly relevant when the history of the company and its current income doesn’t contribute towards its net tangible asset value.
There are two different types of liquidation value to consider as laid out by the international glossary of business valuation terms. These values include:
- Orderly Liquidation: This is where assets are sold piecemeal over a reasonable length of time in an effort to maximise a business’s proceeds throughout the liquidation process.
- Forced Liquidation: When liquidation is forced, this usually means that assets are going to be sold as quickly as possible, usually at an auction. Naturally, if you want to maximise the value of your business’s assets, selling them quickly at an auction is not the best way to do it; however, depending on your business’s situation, forced liquidation might be your only option.
Elements such as timing and bankruptcy laws will all influence your liquidator’s mindset when it comes to determining the appropriate way that your business and its assets can be valued.
What Kind of Assets Might Be Sold in the Liquidation Process?
Hard assets, which include the likes of machinery, land, buildings and equipment tend to be very valuable items and as such are important for the liquidation process. They can generate large sums of money if they are owned by the company and as such, the valuation which is applied to them must be realistic.
There are different types of assets which apply to different businesses though, so it’s not always straightforward when it comes to selling certain types of assets. For instance, thanks to the introduction of remote working and with our general increased reliance on technology, there are a lot of businesses out there that don’t have any physical assets at all. As such, valuing intellectual property might be the only option, which can be a complex process. The likes of stock and work in progress can be valued as viable company assets that could be relied upon when determining the overall worth of a company that finds itself in trouble.
What Happens to a Business’s Assets Throughout the Liquidation Process?
When a company goes through liquidation this involves the sale at auction of a business’s assets in order to generate funds which can then be used to pay off creditors who are owed money by the business. Some of the most common third-party buyers who are often associated with the sale of assets include the likes of other businesses that have no affiliation with the company and other competitor businesses.
There are also other instances where an existing director might be able to purchase the assets from the liquidator once a proper valuation has been given. Generally speaking, this usually means assets will be bought for a figure below market value.
Who Is Responsible for Valuing a Company’s Assets in Liquidation?
The assets form the basis for the sale of the company and therefore, it is incredibly important that they are given a realistic valuation. The valuation needs to be done independently as this is an effective way to increase the accuracy of said valuation. Experts will be called in to provide their opinion on such a value if that is necessary. For instance, if a business is selling land or property that they previously owned, then real estate agents will be needed in order to provide an accurate and independent valuation for these assets. The same applies to the likes of stocks and shares and any machinery or equipment that the company is looking to sell.
Who Will Be Paid from the Proceeds of Sold Assets?
Once accurate valuations have come in, liquidators will be in a position to sell assets to generate funds for the creditors. Unsecured creditors are unlikely to recoup a high proportion of their debt (if any), this is why it is always advised that creditors try and secure their debt.
Do You Need Help with the Liquidation Process?
The liquidation process can be complex and if done wrong, your company may be valued for less than it is actually worth. As such, it is important that if your business is struggling you reach out to professionals such as Simple Liquidation. At Simple Liquidation, our team of experts will be able to sit down with your business to better understand what you do, what your current position is and as such, what the best way to move forward would be. If you have any questions or require any further information then do not hesitate to get in touch.