What Is Forced Liquidation Value?

09 Aug 2021
Forced business liquidation

The liquidation process can be a difficult stage for any business owner. There are staffing considerations, accounting procedures to be undertaken, not to mention the personal pressures involved in having your business liquidated.

You can remove some of the stress of the process when you learn about each of the terms associated with business liquidation. Today, we’ll explain forced liquidation value and explore the processes involved in a forced liquidation.

The Two Types of Liquidation Values

To better understand the process of forced liquidation, you should first familiarize yourself with the differences between the two styles of liquidation. These two styles are orderly liquidation and forced liquidation. Let’s review each in detail:

What is an orderly liquidation value?

Within an orderly liquidation, an organization has time to handle many of the accounting steps involved in shutting down a business. They can put the equipment up for sale, they can close their employment contracts, and they have the time to allow building leases to expire and negotiate the closure of vendor contracts. An orderly liquidation value is calculated through a review of current market rates for assets that show a similar style of depreciation.

What is a forced liquidation value?

The forced liquidation value of your business assets is the value an equipment appraiser will place on your equipment as you go through the liquidation process. Unlike business owners selling their equipment in an everyday transaction, you don’t have the time to promote your equipment and reach out to buyers. You’re selling your equipment at auction, and this can impact the total price you’ll receive from the sale.

The liquidation value of a piece of equipment is the appraiser’s assessment after they review all similar equipment sold at auction. They’ll consider the condition of the equipment and the brand name, as well as the potential market value of the equipment, were it to be sold in the retail marketplace.

The primary factor dictating forced liquidation value is time. Because there’s a limited time to liquidate business assets, the total value of the equipment will be considerably less than it would have been within a traditional business transaction.

When is forced liquidation value the best option?

The primary objective in going through an appraisal for a forced liquidation value is to sell the equipment as quickly as possible. A quick sale can work to your advantage in several ways. For example, consider these benefits of a fast sales process:

  • You’ll have access to funds to pay creditors quickly.
  • Once you pay creditors, you can then close your business and move forward.
  • You can avoid high non-payment penalties within your service contracts.

Other Considerations in Calculating Forced Liquidation Value

In creating a forced liquidation value for a company’s equipment, there are several considerations an appraiser must review beyond the time to complete the sale. These considerations might include:

Equipment Removal Costs

Buyers require special trucks to move business assets such as construction equipment. The cost to hire these vehicles and the time taken to move equipment is an element in a forced market value. Some appraisers deduct these expenses from the total value of the equipment to attract buyers.

Equipment Condition

Does the equipment require maintenance? Is there a specific repair job yet to be undertaken due to the liquidation process? When analyzing the value of the equipment before an auction, the appraiser will review the equipment carefully. They will then determine the required repairs to ensure the equipment is accurately valued.

Total Market Demand

Even though the forced liquidation value you receive will be far lower than the market value, you may achieve a higher price if the equipment is in demand. If your company owns a rare piece of equipment that many of your competitors will be able to use within their business, you can expect a higher return.

Tips for Managing the Liquidation Process

The liquidation of your business will be a challenging experience. You may face several difficult decisions. However, by acting based on industry knowledge, you can ensure that you come out of the liquidation process ready for your next venture. Use these tips to help you in managing the liquidation phase:

Turn to Professional Liquidation Services

You might think you’re being proactive by placing your equipment for sale privately through the company, but this can often cause issues for the business. For example, a private seller might bring a legal case against you if the equipment fails. A professional liquidation service can help guide you and ensure that you’re making the most effective choices every step of the way.

Take Active Control of Your Finances

It’s now the perfect time to review your finances and protect your private assets as your business goes through the liquidation process. Connect with accountants in your area to discuss any legal penalty or tax exposure resulting from your business’s liquidation. An accountant can help you communicate effectively with creditors, and ensure you avoid potential legal ramifications that may result from government action.

Ensure Everyone is on the Same Page

If your company has a large board of directors and multiple people wish to take the company in different directions, try to reach a consensus. One of the foremost challenges businesses face during liquidation is when stakeholders begin to argue about the path toward completing the liquidation phase. They may want changes to the timing of the process or alterations to agreements with creditors.

Speak with your fellow stakeholders carefully and seek legal guidance from a business liquidation expert if you cannot reach a consensus.

Going through a forced liquidation of your business assets will be a challenge. However, with seasoned guidance, you can come away with a renewed sense of hope for the future. Our team at Michaels Global Trading is here to guide you. To learn more about our liquidation services, call us today.

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