Did you know that more than 22,000 businesses in the US went bankrupt each year from 2016 to 2020? Most business bankruptcy is due to insufficient assets, capital, or a solid marketing plan.
If you file for Chapter 7 bankruptcy, you’ll liquidate or sell your assets and close your business. However, liquidating a business is not an easy decision. If you’re struggling with this decision, learning the pros and cons of liquidation will help you decide if it’s your best option.
Keep reading this guide to learn everything you need to know about the pros and cons of liquidating your business.
Pros of Liquidating Your Business
The main advantage of liquidating your business is that you won’t have any more debts.
When you liquidate your company, all pending debts are written off. These debts include unsecured business liabilities you haven’t personally guaranteed with collateral, like your home.
Once your company is dissolved, creditors will receive what they’re owed via selling company assets.
Other pros of liquidating a business include the following:
- Property leases and purchase agreements are usually canceled
- There will be an end to legal action from creditors
- You’ll have personal liability protection from things like wrongful trading
- Voluntary liquidation helps you avoid lengthy court proceedings
- Liquidations don’t cost much because insolvency practitioners take fees from the sale of assets
- You can start another business after the liquidation is complete
Cons of Liquidating Your Business
The main disadvantage to liquidating your business is that all your company assets will be sold to pay creditors. This includes everything from specialized machinery and property to company vehicles.
Since liquidating your company involves the sale of all company assets and dissolving the company entirely, it also includes your employees. As a result of the liquidation, all of your employees, including directors, will become redundant and lose their jobs.
Other disadvantages to liquidation include:
- Creditors and suppliers lose money
- It affects your business reputation
- You lose trading licenses and valuable assets
- You can’t claim losses on your taxes
- Your entire business finance history will be subject to an investigation
- You’ll be restricted from using the same company name or a similar company name in the future
You’ll also have to pay back business debts involving a personal guarantee. A personal guarantee is a legal promise to repay credit given to you for your business.
Creditors with a personal guarantee from you will likely take you to court if you don’t pay the debt.
Finally, liquidation can be a highly complex process. Certain businesses, like supermarkets, can be especially complicated since there are numerous assets and creditors to contact. You can learn more about supermarket liquidation here.
Learn More About Liquidating Your Business
Now that you know more about the pros and cons of liquidating a business, you’ll better be able to decide on the best option for you.
Take the time to talk to a lawyer and an accountant to ensure you understand your liquidation options thoroughly. It’s also essential to get professional help with the liquidation process.
Make sure to visit the rest of our blog today to learn more business tips!