Lessons for Death
3. Preparing a liquidation analysis is part science, part art.
Trying to estimate the cost of the wind-down of a business and the revenue that might generate is not easy. The goal is to shed as many expenses as quickly as possible while maximizing the liquidation value of all of your assets. Before you begin this process, you need to have a road map (a budget), a strategy, and a team ready to move very quickly. The liquidation analysis should be debated aggressively and should have three scenarios (i.e., worst, most likely, best). You have to be as detailed as possible before starting the process. Get three quotes on all major assets (machinery, real estate, equipment, intellectual property). In a liquidation, the value of an item is not what you paid for it, it’s not the value on your books, and it’s not the future value—it’s the price that the market will pay at that time. How will you know this value? You will know it by the offers that show up. If the offers don’t come, you have to lower the price until someone is willing to pay for it.
The irony of some liquidations is that they can actually be more profitable than the previous business model. Why? They strip the company of all unnecessary expenses and present themselves to the public as “Going Out of Business” so their expectations are lowered. In many cases, a skillful liquidator can keep a liquidation going long after all debt obligations are paid off. Have you ever seen a furniture company with a GOB sign on a building for a year or more? They’re masters at liquidating. They’re making furniture from old inventory, with little overhead, and advertising prices such as 70% off, and they’re still making a profit.
Task: Prepare a liquidation analysis—a basic cash flow projection that shows a company stripped of most of its expenses and has an estimate of what will sell and when. It should show a chart that gradually fades to zero, ideally once the debt is repaid or when all assets are collected and sold.