When companies are faced with the need to recover assets, they have a few options. The most common ways to recover assets are with liquidation sales and auction sales.
Understanding the distinction between these two different types of sales can help make the right decision if a company is faced with the need to sell land or equipment. In this article we detail the differences, benefits, and drawbacks of liquidation sales and auction sales.
Orderly Liquidations
A liquidation sale is the process of selling the assets of a business (in an orderly fashion over a longer period of time to achieve higher values that are closer to market value). Liquidation sales are similar to store closings, when special companies come into a store to sell the remaining inventory. They are often longer sale processes, where items are sold over the course of weeks, months, and even years. Industrial liquidation sales often involve the sellers reviewing offers and negotiating prices.
The main benefits of orderly liquidations are:
- Longer selling time, giving sellers the time to find the right buyer for their equipment, which can often fetch higher prices.
- Sellers can review multiple offers, taking the time to decide which one works for them.
- Negotiation on the part of the buyer and the seller is the main driving force in determining what an item sells for.
- Works better for more specialized or unique equipment. Often there are limited buyers for such equipment; liquidation sales give sellers the time to track down those buyers.
- The main benefit is time: more time to conduct the sale, more time to find the best buyers.
Liquidation sales also have drawbacks:
- Equipment needs to be stored on a site for the sale.
- Mortgage payments for facilities, utility costs, security costs, and property taxes may need to be paid.
- If the sale takes place over months or years, costs can get high.
One interesting aspect of liquidation sales is that they often turn into auction sales. After the larger, more expensive items at an orderly liquidation, the smaller pieces of equipment and factory support items often are sold at auction. This is an effective way to sell off assets from a factory after the larger items have been purchased.
Auction Sales
Auctions are often the opposite of liquidation sales, in that they take place very quickly from start to finish.
The benefits of auction sales are:
- Auction sales are quick; from start to finish, an auction deal — the set up of the equipment, the auction itself, and the clean up can take only about 90 days.
- Bidder competition can drive prices up.
- Online technologies can attract bidders from all over the world.
- Auctions often happen when a company has surplus equipment they want to sell.
The one main drawback of an auction is that items might not always sell for the price expected. Competition among bidders is what determines an item's selling price and sometimes there is not enough competition to drive a price up.
Both types of sales work well to help recover assets. In choosing which type is right for your business, consider what needs you have. If you want find a specific buyer for your equipment and have time to spare, an orderly liquidation might work best for you. If time is of the essence and you need a quick recovery, an auction might fit your needs better.
– Richard Reese
If you are considering orderly liquidation or auction options, we can help guide you through the process.
Contact us at 415-522-5700.
