Sale vs Liquidation for SMEs: Why and How

As the owner of a small business, when you are looking to exit your business it is possible that the first though that comes to your mind is that of shutting it down. Since buying and selling of SMEs in India has long been unorganized, scattered and difficult to manage, you are not alone in this.

However, the landscape is now changing. For businesses today, there is yet another option — and more often than not, a more lucrative option. This option is selling the business to a prospective buyer. The choice between ‘Sale’ and ‘Liquidation’ becomes easy when you understand what each of these means, and under what circumstances each of these are applicable.

For starters, remember that ‘Liquidation’ is equivalent to shutting shop — once you liquidate your business, it no longer exists. Whereas, sale of business means that your business is an ongoing entity. This fundamental difference leads to widely different implications in each case, as we will see shortly. In this article, we compare the two options available to a business owner to exit his business — Sale and Liquidation — and provide you with useful tips on how to go about deciding on the same.

Value of Business: When you sell your business, the value you receive is the perceived total worth of the tangible and intangible assets of your business, the business reputation that you have built over a period several years or decades, and the future potential that your business presents.

In Liquidation, an independent valuer values the tangible assets of your business, and this value is distributed among the creditors and shareholders as per the norms set by the Companies Act. All the intangible assets of your business and the value of your years of hard work simply don’t find a place in the liquidation process. This means that unless you are absolutely certain that your enterprise is not worth selling, the choice to liquidate your business should be your last resort. Many business owners liquidate the business or sell it at a nominal rate in the belief that their businesses are not worth it. It is recommended that you seek professional opinion on the worth of your business before you arrive at any such conclusion.

Process and Stages: Sale of business is typically a long-drawn process. You have to identify prospects, qualify them, manage and shortlist inquiries, present your detailed business profile, pass through due diligence, negotiate on valuation and sale terms and conditions, transfer ownership, receive payments, and manage transition too, if need be. Liquidation or closing a business, on the other hand, is a relatively simpler process, unless your business is in a legal, financial or operational mess. All you have to do is get the necessary filings done, ensure that each party gets his / her dues, and that your CA and CS (in the case of companies) carry out the proceedings as required.

But, is selling your business worth the pain? It is. Not only do you get rewarded for the hard work you have put into your business, but you can also watch it grow and flourish in the hands of another owner, instead of closing it altogether. This is particularly important, as most business owners have an emotional attachment towards their business.

Preparation Required: Sale of business entails preparation such as sorting your business documents, financials, legal issues, ownership disputes and so on. You will also need to hire professionals either as consultants or as a part of your team to get the right buyers, manage your deal smoothly and ensure that you get the best out of it. Closing a business is a relatively easy affair that requires little preparation.

However, as hard as it sounds, selling a business in India is now an easy, smooth and convenient experience with dedicated web portals such as IndiaBizForSale. We enable SME owners sell their business effectively and efficiently, through our superior platform and advisory services. Recently, we have also started the Business Buyer’s Club — a city-wise exclusive event where we showcase attractive businesses to genuine buyers, investors and business owners to enable quick deal-discovery. Our upcoming Business Buyer’s Club event is going to be hosted in Ahmedabad in the later part of August, 2017. To know more about Business Buyer’s Club and IndiaBizForSale.com in general, please contact us on info@indiabiforsale.com.