Total Liquidation vs. Going Out of Business: What’s the Difference?

boxes of office equipment and computer monitors, total liquidation vs going out of business

There are 6.5 million businesses that start every year, but 21.5% of them will fail within the first year of operating, and the failure rate rockets up to 50% in the 5th year of business. Not every business is as successful as originally intended and business owners need to make wise decisions when considering the longevity of their operation. If the decision is to close up shop and move on to greener pastures, there are a few options to consider: going out of business or total liquidation – but what’s the difference?

Read on to learn how knowing the difference between the two can help when making this difficult decision. It is also helpful to consult an experienced business attorney while going through the process.

Total Liquidation Option

Before you decide to sell everything off, make sure to value the assets before selling. The total estate liquidation value of small business assets is approximately 20% less than retail value. To assist in discovering the value of the property there are qualified appraisers or professional retail liquidation consultants to help you along the way.

Liquidating assets can be a tricky business and converting assets to cash is an important factor in paying off outstanding debts to creditors.

Make a list of all property owned by the business. This should include everything – including office supplies. Some items to keep in mind are:

  • all equipment, computers, and phones
  • vehicles
  • office buildings and other real estate
  • any money that is owed to the business

Find buyers for your assets and keep in mind that just because you paid thousands of dollars for the office computer system doesn’t mean that you’ll get that exact amount back in a sale. Each business liquidation is unique and there is no set strategy.

Consider the time of year you want to hold your liquidation sale and how long the sale will last. You’ll want to keep the time of the sale short to avoid any additional cost to the business.  

Bankruptcy Option

If the value of the business assets is enough to pay outstanding debts, filing for bankruptcy allows the courts to sell off your assets and will pay off your creditors from the proceeds. 

If the value of the business is not adequate to cover the outstanding debts, bankruptcy can be an attractive option for business owners, even though there are additional costs and the process is more time-consuming. Bankruptcy will wipe out credit card debt and what you owe to suppliers – something total liquidation will not do. 

Filing for bankruptcy involves intricate steps and the variations of different types of bankruptcy can cause additional headaches to business owners. Hiring a lawyer will help alleviate these headaches and make the transition easier.

A business law lawyer will be able to keep up with filing and tax requirements as well as develop a plan to approach creditors. 

Why You Should Hire a Business Attorney

Boyer Law Firm can help you make those tough decisions when deciding to go out of business, file for bankruptcy, or sell assets for a total liquidation. Hiring a business law attorney will help protect you every step of the way. 

Contact us today for a case evaluation.