When you are thinking about the eventual sale of your business you will calculate a number of values. The going concern value, the net realizable value and the liquidation value. This recommendation is about the calculation of liquidation value.
The liquidation value is the value of your business if you sell it in pieces, not as a business. This is the value you should be able to get even if you cannot find a buyer for the business. To calculate the liquidation value, you make a list of your assets and figure out who would buy each type of asset and for how much. You could factor your receivables, sell your inventory to a jobber and sell your land and building to anyone who wants them. How much could you get for all of these assets? This value, less your liabilities, is your liquidation value.
Occasionally, there will be a higher liquidation value than the going concern value. This happens when someone would buy your assets for a higher value than they would pay for your business. An example is when the land under your convenience store is worth more money to someone like Tim Hortons than your convenience store business is worth to anyone.
When thinking about succession you should calculate all the values, because you are looking for the most money you can get, when you are ready to sell.
No comments yet.