Is liquidating your business a good idea?

Surprisingly, many business owners choose to liquidate and wind-up their business rather than attempt to sell it. According to Statistics Canada, 23% of business owners will choose to close their business rather than sell it. It is hard to believe that this many owners would put so much sweat equity into the one asset that has helped them generate a wealth of income, only to walk away from all that built up potentishutterstock_19024576_612x480al in the end. Liquidating your business means that you will be only getting auction value for your assets. Valuable goodwill such as customer lists, supply chain agreements, intellectual property, etc. is all thrown away. This equates to lost potential earnings for the owner and is a wasted opportunity for a potential buyer. The bigger effect is that it leaves a void in the industry, reduces supply chain revenue, cuts needed jobs and helps the bigger companies get bigger, making it difficult for entrepreneurs to enter the market space.

Knowing this, why would anyone want to liquidate their business? I will concede that I was one of those individuals. One of my businesses was quite complicated and interested buyers wanted me to stay on for an extended period of time. Since I had done quite well with the business, I chose to just liquidate the assets. This, in hindsight, was a very selfish act because it created unemployment for over a dozen people and much of the business we brought into the province was halted. Out of province customer relationships that were forged over time ceased and our customers naturally looked for local or lower cost, out of province options. Knowing what I know now, I would have structured a deal much differently in order to have the industry retain the business and talent.

Over the years, I have found that the most common reasons owners choose to liquidate rather than sell are because they are forced to, they don’t think their business is worth anything more than the assets, or they have done well with the business and don’t want the hassle of going through a sale.

These are understandable reasons, however, when I have asked owners who have liquidated if they talked to a business broker or business valuator to see if the business was worth more than the asset value, it was no surprise that the answer was “no”. Considering there is most often no cost for a broker to give their opinion of value, why would you not at lease explore the possibility that your business is worth more than the asset value. Worst case scenario, you proceed as planned, best case scenario, you walk away with more cash in your pocket.

Regardless of the exit strategy, always attempt to capitalize on the good will you have generate by speaking with the a business broker who can maximize it for you. After all, that is why they are there.