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What Is Liquidation?
The term “liquidation” is used differently in different contexts. It refers to the process by which the assets of a business are converted into cash and distributed to creditors and shareholders pursuant to closing the business. Certain types of bankruptcy also involve the liquidation of business assets.
But perhaps the type of liquidation most familiar to the average person is the process of selling off inventory at discount prices to clear out old items and make room for new ones or to raise cash for other purposes, such as expansion of the business. Stores also liquidate inventory before relocating, so as not to have to transport old merchandise to the new location. And in certain unfortunate circumstances, liquidation services are part of the disaster recovery response following a fire, flood, or other incident.
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What Assets Can Be Liquidated?
Businesses own both intangible and tangible assets. Intangible assets have value, but they are invisible, without physical form and include things like brand recognition, trademarks, intellectual property, reputation, and so on. This does not include financial assets such as insurance policies with cash value, security deposits held by landlords or utility companies, accounts receivable (open invoices not yet paid by customers), or stocks, bonds, and other financial securities. Financial assets are considered to be tangible assets because, even though they typically are held in electronic form, there is an underlying contract.
The focus of this article is on tangible, physical assets (other than financial assets) that a business may need to liquidate, including such items as:
- Merchandise in inventory, including overstock and returns
- Finished goods and parts and materials held in inventory
- Business equipment (communications gear, computers, cash registers, copiers, etc.) and supplies
- Office furnishings (furniture, art, etc.)
- Store fixtures (racks, shelving, carts, etc.)
What Is the Nature of the Need for Liquidation?
Just about any kind of business in any industry may need liquidation services for tangible assets. The need to liquidate inventory is not limited to retailers. Any business that owns physical merchandise—manufacturers, distributors, wholesalers, or retailers—may need or want to liquidate some or all of their inventory.
Banks and other lenders can end up owning real estate, vehicles, and other high-value items when borrowers default. These financial institutions need to liquidate such assets to recover as much of the outstanding loan amounts as possible.
Who Offers Liquidation Services?
The nature of the need for liquidation services is the key factor in selecting a liquidator. Different types of liquidators specialize in different liquidation services. For example, estate liquidations often are handled by auction houses that specialize in running estate sales, particularly when fine art or antiques are involved, because of the specialized knowledge required to obtain the best prices. Bank-owned properties (properties returned to a lender through foreclosure) typically are liquidated by a real estate firm with knowledge of the local market. And there are liquidators that specialize in the construction industry, selling off construction equipment and excess or salvaged building materials. Their knowledge of construction and network of contacts in the construction industry help ensure quick sales at good prices.