Liquidate Assets

If you are faced with closing your business and you were unable to locate a buyer to purchase the business in its entirety, you should consider selling/liquidating your business’s assets. There are variety of reasons to close a business, including poor results, owner retirement or poor health, or the loss of a franchise arrangement. Closing a business and liquidating assets can be a very complicated procedure subject to many laws and regulations. You should speak with an attorney or certified public accountant that specializes in business closures. While the process of closing a business is very difficult for many reasons, it is important to make sure you get the best value for your assets, pay your employees, satisfy your creditors, and comply with state and federal laws.

Steps

Liquidating Your Assets

1. Talk to your lawyer and accountant. Before taking any steps to close your business and liquidate your assets, you should speak with your lawyer and accountant and make a plan that follows federal and state law, provides you with the most value for your business, and pays off your creditors.
2. Review your business’s articles and bylaws. You should review your business’s articles and bylaws to make sure that your closing plan is in accordance with your business partnership agreements and meets any shareholder requirements.
3. Document all debts owed by the business. Gather information and documentation that states the amounts and creditors of any debts owed by the business. This may include small business loans, accounts payable, and other debt. Go through this debt and figure out if the debt is secured or unsecured (secured means backed by collateral). In addition, check if any of your loans are personally guaranteed (meaning that you are personally responsible for their repayment).
4. Inventory all of your business's assets. Go through all of your business property, equipment, cash, accounts and other assets and create a detailed list of everything owned by the business. Your list should include the following items:
   • Unpaid debt that you expect to collect, business bank accounts and deposits, and any rent that the business will collect prior to its closure.
   • List all physical property, including the actual building and land, if owned by the business, and any equipment, including computers and manufacturing equipment, furniture, vehicles and any other items owned by the business and that can be sold.
   • List all security deposits that the business made to landlords and any prepaid insurance premiums that will be reimbursed.
   • This list will not only facilitate the sale of your assets but can also be used in reporting the business’s assets to the IRS and creditors.
   • A business's assets may also include intangible assets, like patents, copyrights, or logos. Depending on your type of business, these can be incredibly valuable.
   • Collect any debts owed to your business. You should demand payment before you publicly announce the closing of the business. For a debtor that is refusing to pay, you should consider reducing the amount that they owe to you. It may be easier to collect a partial payment and you would at least have some of the money repaid before your business closes.
5. Hire an appraiser. Once you have inventoried all of your assets, you should hire an experienced appraiser to value these items. Appraisers know how to reduce the price of goods for damaged assets and properly value assets, such as machinery.
   • Closely review the written appraisal report and calculate the cost of selling all of the inventoried items. These costs may include commissions, labor, rent and liens.
   • If the total appraisal value of your assets is less than the cost of selling all of your assets, ask your attorney, what other options you have for getting value from your assets.
6. Decide how best to sell your assets. There are a number of ways that you can sell of your business’s assets. When deciding what is best for your company, consider which way will provide the greatest return and is reasonably convenient based on your inventory. Work to identify those candidates who are most likely to be interested in purchasing some or all of your assets.
   • Keep in mind that inventory and accounts receivable can be sold at a discount for a lump sum, as long these assets are not specifically pledged to a creditor.
   • Ask your landlord whether he or she wants to buy your inventory as is, so that they can easily re-lease the space for the same business use.
   • If you have items that are easily moved and a local retailer that specializes in your types of goods, you can choose a consignment sale. A dealer would sell your assets for you and you would get a share of all of the proceeds.
   • You may be able to reach the largest audience by selling your assets on the internet. Keep in mind that if your assets are very large or extremely heavy, shipping costs may significantly reduce the amount of your profit.
   • You can hire a professional auction company to come to your business site and auction items at a set time. You can publish and distribute an inventory list or advertise the sale online. This may be a good option if you are trying to sell a majority of your items quickly.
   • You can also do an online auction if assets are not so specialized as to limit potential buyers.
   • Typically, it is best to hold the sale on your business premises. This will reduce the costs associated with moving the items.
7. Request that all prepaid expenses be returned. After you establish a closing date and begin selling assets, send a letter to your insurance company requesting the return of any prepaid premiums. Your letter should also indicate the date that your policy will terminate. You should also request repayments of prepaid utilities or other prepaid expenses your business may have.
   • This should only be done after the business has completely ceased operations.
8. Notify your creditors. Remember, you must discuss your plan to liquidate your assets with your creditors. After developing a plan with your accountant and lawyer, you can present this plan to your creditors. If your plan appears reasonable and shows how you will satisfy your debt, your creditors will most likely give you permission to move forward.
   • Your notification requirements may differ between your secured creditors and unsecured creditors. Secured creditors are those who have lent you money backed by collateral (your business or another asset). They have the highest priority for receiving repayment.
   • Have your attorney carefully review state laws to determine whether you are also responsible for publishing an announcement notifying any additional creditors of the business’s pending closure. Review any alone agreements to understand restrictions or notification requirements on the sale of assets.
   • It is also important to determine your personal liabilities and exposure to the company closing. This will depend on the structure of your business, such as whether it is a corporation, a sole proprietorship, or a partnership.
   • You may also be required to give creditors a certain amount of time for them to submit any debt claims. You must also provide them an address where the claims should be sent.

Handling Your Financial Obligations

1. File all required state and federal taxes. You must satisfy any taxes owed to the government or negotiate a settlement with the IRS. Below is a list of some of the taxes that you may owe and documents that you may need to file:
   • Payroll Taxes.
   • Sales Tax.
   • Social Security and Medicare taxes for employees.
   • Federal and State Income Tax Returns.
   • Tax reforms related to your Partnership or LLC or your Corporation.
   • Employer Tax returns.
   • Withholding statements.
   • Contractor statements.
   • Pension plans.
   • The IRS provides a taxes-owed checklist for closing businesses and also identifies the documents that the business must file at: https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Closing-a-Business-Checklist.
2. Pay your employees. Once you have liquidated all of your assets, you should work to satisfy your financial obligations. You should start by paying employees by their last day of work or very soon after, depending on the laws of your state.
   • Depending on your state, you may be required to compensate employees for their unused vacation time.
   • If you have more than 100 employees, you must provide those employees with at least 60 days advance notice that the business is closing. Some states have similar requirements for businesses with less than 100 employees.
   • Discuss this notification with your attorney and make sure that you are complying with all federal and state employment and labor laws.
3. Terminate ongoing contracts and refund deposits. Locate records of services or products you have been paid for already but not completed. Return deposits to customers in full. Similarly, contact customers under ongoing contracts and settle the account according to the contract.
4. Terminate your lease. If you are a party to a commercial lease, you must notify the lessor of your plan to close your business. You may be required to pay all rent due through the end of the lease. Review your lease to identify and understand any liabilities, penalties, or notices required, including the landlord's right. You may not have the right to sublease. An attorney should be involved if contention is likely.
   • There are ways to reduce the amount that you are required to pay. If you can find another tenant to take over the space then you are only required to pay rent until the new tenant’s lease starts.
   • If you cannot find a new tenant, you may want to negotiate a set settlement amount with the landlord to buy yourself out of the lease. If you do not have substantial assets, a landlord may agree to this in order to get some amount of compensation.

Making Your Final Distributions

1. Settle your debts with your creditors. Once you have satisfied all of your legal reporting and payroll obligations, you are responsible for paying off the debt your business owes its creditors. You may be able to negotiate a reduced repayment if it appears that you are unable to repay all of your creditors.
   • Your accountant and lawyer will go through all of your creditors’ claims, prioritize those that you are required to pay first, and negotiate potential settlements.
   • You must repay all of your debts before any funds can be distributed to you and/or your business partners.
2. Distribute assets to owners and partners. If you have paid off the business’s debt, you can then distribute the remaining assets to the business owners or partners in accordance with the business’s articles of incorporation or bylaws.
   • You may want to consider leaving some funds in a contingency account just in case a creditor makes a last minute claim that you must pay out.
3. Close all business bank accounts. After waiting a reasonable amount of time for creditors to make any last claims, you should close the remaining business accounts and distribute the funds to the owners and/or business partners.
4. Maintain your business records. Even though your business is closed, you still have an obligation to maintain your business records for a certain amount of time. You should consider maintaining your records for at least 3 to 7 years.

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