Wednesday, June 27, 2012

Potential Results of A Forced Liquidation

Business Briefs



Do You Know What a Forced Liquidation Can Do to the Value of Your Business?
If liquidation is forced on a disabled business owner or on the executor of a deceased business owner, it can quickly become public knowledge that there is pressure to dispose of the business, and these results can be anticipated:
  • Sale of business assets at greatly reduced prices.
  • Elimination of the disabled business owner's or surviving family's primary source of income.
  • Sacrifice of any goodwill value that might have facilitated sale of the business as a going concern.
  • Difficulty in collecting accounts receivable.
  • Immediate demand by creditors for settlement of their claims.
  • Possible liquidation of other estate assets to pay business debts.
The liquidation value of a business is unpredictable and may be substantially less than the value of the business as a going concern.
The Alternative... A Planned Liquidation:
In some situations, the liquidation of a business interest at an owner's death or disability may not be just an appropriate decision. It may, in fact, be the only possible outcome under either of these circumstances:
  • The success of the business is completely dependent on the personal skill and experience of the owner.
  • There is no successor management in the form of a capable family member, a co-owner, a key employee interested in purchasing the business or an outside buyer.

In these circumstances, the question then becomes:
Will the liquidation take place on a forced basis, or will it be planned in advance to allow for the most advantageous disposition possible?
When liquidation of the business at an owner's death or disability is the only viable alternative, the primary objective should be to plan in advance for an orderly liquidation that results in the greatest possible value for the disabled owner or surviving family. Please contact our office if we can help.
To view the complete NFS Business Briefs Newsletter for June 2012, click here.

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