If your business is facing financial pressure, converting assets into cash can help bridge the gap until your situation improves. During a cash flow crisis, acting quickly is crucial.
Keeping an up-to-date asset register allows you to easily identify potential assets to sell. Review your balance sheet carefully to spot opportunities to free up cash and consult with your accountant or business adviser if you’re uncertain about the best course of action.
Let’s take a closer look at the business assets that can potentially be liquidized.
1. Current assets
This category covers any items that can be quickly sold and converted to cash. If you don’t need to repurchase these items to continue to operate, you could use the money to pay for other more immediate costs to buy you more time to recover.
Apart from the cash you have in your accounts, investigate what you either don’t need or could reduce the amount on hand. Common current assets examples to convert to cash are:
- Accounts receivable to collect.
- Existing inventory.
- Raw materials.
- Manufacturing and packaging supplies.
- Short-term investments that mature in under 12 months.
- Any funds in offshore accounts you can bring back.
If in the past you’ve held excess stock and raw materials to take advantage of bulk discounts or efficiencies, look at reviewing your processes to only order just-in-time to lower the volume you hold.
2. Fixed or long-term assets
These are usually the more expensive items you’ve purchased to run your business and typically last more than one year. Think about taking the opportunity to streamline and sell anything you no longer need.
Common examples to convert to cash are:
- Excess technology.
- Office equipment and furniture.
- Machinery and plant or vehicles.
- Long-term investments.
If you own property, land, equipment or vehicles that are still needed, you could sell the asset to free up capital and then lease back. It usually costs more in the long run to lease an asset than own it, but you’ll get an immediate injection of cash to keep you afloat.
If you do find circumstances are disastrous, you may need to scale down to a skeleton operation to keep the business intact to fight another day, as it’s a balancing act between having the cash to survive without hamstringing your business permanently.
3. Intangible assets
These can be valuable, but they are often more difficult to sell or liquidize because they lack a physical presence and can be challenging to value. These assets include intellectual property (IP), brand reputation, goodwill, and proprietary business know-how. While these assets contribute significantly to the overall value of your business, they are not as easily transferable or monetized as physical assets. Furthermore, potential buyers for intangible assets are often other businesses within your industry, who may also be facing financial pressure and unable to afford such purchases.
Common examples of intangible assets that could potentially be liquidized include:
- If your business holds patents for unique products, technologies, or processes, these could be sold to other companies looking to expand their product lines or gain a competitive edge.
- Trademarks and branding. A business might be willing to purchase your trademark if it aligns with their own product offerings or helps them tap into a new market segment.
- Customer contracts. These contracts might be transferable, especially if they guarantee recurring revenue streams or secure supply chains.
- Business goodwill. This refers to the established reputation and relationships your business has built over time, which can be an attractive asset for buyers.
- Proprietary know-how. Selling this knowledge, such as in the form of a license, could provide a way to monetize it, though it may also be difficult to detach from the business as a whole.
In many cases, these assets are deeply intertwined with your business’s overall value, and selling them could undermine the future viability of your company.
4. Other business interests
In times of financial strain, it’s important to take a critical look at all aspects of your business, including areas that may not be essential to your core operations. This can include non-essential locations, branches, or office spaces that may be costing you more than they’re contributing. If you own multiple locations, consider whether some can be sold as standalone businesses, potentially as going concerns, which could provide an immediate cash infusion. Alternatively, you could close down these locations and liquidize the physical assets to raise cash.
If your business has expanded into non-core products or services in the past, or ventured into new markets that are underperforming, it may be wise to retrench to your core offerings. By divesting from non-essential operations, you can focus resources on the parts of the business that are most profitable and have the greatest potential for growth. This could involve selling off product lines, closing unprofitable divisions, or even exiting markets that no longer align with your long-term business strategy.
Next steps
- Review your asset register and balance sheet to identify any current, fixed, intangible, or non-core assets that could be liquidized to generate cash quickly.
- Speak with your accountant or business adviser to discuss your options and ensure you’re making informed decisions about which assets to sell or repurpose.
- Consider downsizing or eliminating underperforming parts of your business to focus on your core operations and reduce ongoing costs.
- Once you’ve navigated the immediate crisis, create a strategy for managing cash flow and building financial resilience to prevent similar issues in the future.
Remember that the liquidation value of an asset is most likely to be below market value, so carefully consider all your options before you sell off the business silver to keep things running. Seek legal, financial and business advice if you’re making decisions that impact on your long-term future.