Business owners that are on the verge of bankruptcy or that face the foreclosure of commercial property ‘often view asset liquidation as the most appropriate exit strategy. Liquidation refers to the conversion of assets to cash by selling them to other businesses or consumers. Before a Birmingham business proceeds with liquidation, the owner should carefully consider whether the process is worth his or her while.

According to Walters Kluwer, there are three types of businesses that will liquidate assets. Which category a company falls into can serve as a key indicator of the success of the process.

The first category of business is those with assets the company uses to indirectly produce income. Such assets include furniture, equipment and fixtures. The liquidation value of these types of companies is minimal, and auction is the most viable option for the sale.

The next category of business is one that uses its assets to produce income directly. Such companies include retail stores, sporting good stores and furniture stores. These businesses stand to regain some of what they lost via a liquidation sale.

The final category of business is one that utilizes tools to produce income indirectly. Examples of such companies include restaurants, manufacturers and construction companies. These businesses stand to gain the most from liquidation sales.

Once a business identifies which category it falls into, it should work with an accountant, attorney and professional appraiser to determine the total value of all the assets, says the U.S. Small Business Administration. When calculating the liquidation value, a business owner should take the appraised value and reduce it by 20%.

After establishing the liquidation value, the business must then decide if a liquidation sale is worth the effort. It can do this by estimating the net sale proceeds after it has paid expenses such as commissions, storage, moving, advertising, labor, rent and utilities. Additional fees the SBA advises businesses to consider include past-due property taxes, delinquent personal taxes and debts.

If, after a complete appraisal, a business owner decides to move forward with a liquidation sale, he or she must then choose the best type of sale for the merchandise. Sales types include consignment, closed bids, negotiated, internet and retail sales. Auction is another common type of liquidation sale option.

Additional advice the SBA gives regarding liquidation sales includes choosing the right time and the right place. Timing and location can make or break the success of a liquidation sale. The final bit of advice is to work with a professional, as the right professional can use his or her connections and knowledge to help a company secure the highest dollar return possible.