The exit strategy known as liquidation can be described as the process by which a business closes and sells off business assets (Maguire, 2016). Assets of the business such as business property would be sold to obtain cash (Maguire, 2016). Additional items such as inventory on hand can also be sold off or liquefied (Rogers, 2014), as well as, fixtures, equipment, and furniture (McCarty, n.d.). The cash obtained would first be used to pay off any outstanding debts the business owes (Maguire, 2016). In certain circumstances and if a company has multiple stores, it may become necessary for a business to liquefy certain locations due to lack of sales in that area or due to outside issues unrelated to the company. In this case, the business may find they must close a location, liquefy assets, and relocate employees to other locations.
There are pros and cons to the liquidation exit strategy business owners should keep in mind. On a positive note, the liquidation exit strategy can keep a business from acquiring additional debt and going further into a financial hole (Maguire, 2016). An additional positive of the liquidation exit strategy is that professional firms can be hired to help make the process as successful as possible (McCarty, n.d.). Finally, McCarty (n.d.) noted that the liquidation exit strategy can be a rewarding process for business owners when all goes well making this strategy worth considering. However, one con that Maguire (2016) noted was that business owners and investors may not be able to obtain their financing back if a business uses the liquidation exit strategy and does not have large enough assets and property to liquefy to repay debts owed. McCarty (n.d.) noted that retail inventory liquidation can be challenging and markdowns of merchandise must be determined. These are just a few pros and cons of using liquidation as an exit strategy.
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Maguire, A. (2016, November 23). Cashing out: Understanding different exit strategies. Retrieved August 29, 2019, from https://quickbooks.intuit.com/r/business-planning/cashing-out-understanding-different-exit-strategies/
McCarty, D. (n.d.). Liquidation as an exit strategy. Retrieved August 30, 2019, from https://www.bizfilings.com/toolkit/research-topics/running-your-business/exit-strategies/liquidation-as-an-exit-strategy
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Rogers, S. (2014). Entrepreneurial finance: Finance and business strategies for the serious entrepreneur. Place of publication not identified: McGraw Hill Education.