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Closing Shop 101 (Week 3): Liquidating, Circuit City-Style

by Kimberly on June 8, 2010 · 0 comments

We’re now in week 3 of our Closing Shop 101 series, having talked in week 1 about the importance of having an exit strategy and covering your first option (selling the business) last week.

Today’s topic? Liquidation.

The Basics

First, a brief definition (courtesy of Dictionary.com): Liquidation occurs “(w)hen a business or firm is terminated or goes bankrupt, it’s assets are sold and the proceeds pay creditors. Any leftovers are distributed to shareholders.”

When you sell a business (which we covered last week), the business lives on. The new owner assumes all the risk, liability, and assets of the business. The business has not “closed shop,” but continues to provide it’s products and services under new ownership.

Liquidation is similar to acquisition in one way: you are selling off your business. However, instead of selling it as one, big, major piece to a new owner, you are selling it in chunks, including inventory, equipment, real estate, and any other assets that belong to the business. The proceeds from the liquidation sale are first used to pay any outstanding debt and liability. Then the remaining money goes to the owners/stockholders/LLC members.

When you liquidate your business, it does not “live on.”

I have never heard of a therapy business being liquidated…I don’t think it’s common with a service-oriented business. It’s more common for a retail business with inventory to liquidate it’s assets…and commonly, though not always, when it goes bankrupt. You usually hear of liquidation sales with big national companies that have filed for bankruptcy: Circuit City, Linen ‘n Things, and Sharper Images, for example.

That said, the only reason I mention it in this series is that, technically, it is an option for you. However, given how uncommon it seems to be for therapists in private practice to liquidate their business, I’m not sure much more is needed here beyond this basic overview.

NEXT WEEK: Next week, we’ll talk about maintaining ownership of the business and hiring a manager.

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