In finance and economics, liquidation is an event that usually occur when a company is insolvent, meaning it cannot pay its obligations as and when they come due. The company’s operations are brought to an end, and its assets are divvied up among creditors and shareholders, according to the priority of their claims.
An asset, in business terms, is something bought by a company to increase its value and income, or to help benefit the company’s overall operations. Assets will be recorded on a company’s balance sheet, and can either be tangible or intangible.
As a business owner you must understand the phrase” liquidation of asset” as situations might arise that can lead to putting it into use.
Liquidation of asset simply put is the conversion of property to cash. It also means the selling of the asset of a business as part of the process of dissolving the business.
Things that can be liquified must be such that are of value, so that when sold the price would not be affected, instead it should help generate more fund than the initial amount that was used for its purchase.
Types of assets
Tangible assets: These are the physical assets, they are not consumed in the course of the business e.g. land, buildings, company cars, company equipment.
Intangible asset: These are the non-physical, such as domain names, brand name, computerised databases, software, websites. They are likely to bring more value to the company than tangible assets.
Current asset: A current asset is something that the business owns and will be consumed or converted into cash within one year, they include; Trade debtors, Cash at bank and in hand, Prepayments.
Fixed assets: A fixed asset is something that the business owns and will be used in the business for at least one year e.g.Land, Buildings, Fixtures and fittings.
Assets that can be liquified
Landed property: land yields profit overtime, the value increases as time pass.
Buildings: Erected buildings can also be sold, when a business investor want to liquidity his/her assets. Buildings also generate value over time.
Intangible assets: intangible assets such as domain and brand names, computerized databases, websites can be sold alongside the company, these assets also help generate money.
When to liquefy your assets
A business investor cannot just wake up a day and decide to liquefy his/her asset, there are some triggering factors that will lead to taking the step, they include;
He/she might want to relocate to another country or a different part of the country and may not have plans of coming back to the original base, this can make the business owner sell off assets, with the aim of re-establishing in another country.
This is when a company can no longer fulfill its obligations as at when due or when a company is owing more than they have in assets. The company owner can liquefy the assets in order to meet up with the debts.
Change of Business
A business Owner might decide to have a change of business i.e dive into something else and this will require laying off some of your properties so as to get the required capital needed for the new business.
Assets can also be liquefied for one’s personal use, especially when you want to clear some bills and there is no cash in hand or bank, you might decide to sell off some of your assets in order to get the desired money.
When not to liquefy your assets
There are some challenges that would not warrant liquefying your assets but might still make you consider liquefying them.
Nevertheless there are certain times you should not consider liquidation as an option, especially when you have nothing to fall back on i.e after you might have sold off all your properties either to clear some debts or make use of the money and there’s no other means of generating income, you need to reconsider liquidation.
Furthermore, when there are other ways or options of getting the money you need, why should you liquefy your assets? that is the more reason why you should weigh your options and pick what would be best for you and your company in years to come.
Also, when your debts are minimal and you can still pay them off by selling just few of your assets, you should not let that pull you down by selling all your properties, you can sell some of your fixed assets to clear the debts and work hard to keep your company moving forward.
Conclusively, as a business owner or investor a time will come when problems or challenges will arise in your busines, the ability to overcome these challenges is what will make your business stronger, that is why, when you want to take decisions about your business or company you need to consider all your options and settle for the best.