If you have an eCommerce, surely at some point you have had to take charge of settlements. But, Do you know what liquidations are?
If you are still not sure, or need to learn more about them, here we have compiled all the information you need about it. Shall we start?
What are liquidations
The first thing you need to understand is the concept of settlements. This occurs when there is a sale of all of a company's inventory. For example, imagine that in your eCommerce you have a category of bags and you don't want to continue selling them but rather get rid of them. So you do liquidation, usually selling them at a lower price than usual. That would be a liquidation of products because you are no longer going to buy them and sell them in your store.
Now, when liquidations occur, it is normal that they are done because the business is going to close. However, the situation that we have mentioned before is feasible because, when a store has many products, it may end up choosing only a few and taking away the rest by selling them at a cheaper price.
Therefore, the exact definition of liquidations They would be sales of all the assets of a company. These will generate money with which the company can pay the debts it has and thus close the business to zero or directly continue it with the products that interest it.
What assets are susceptible to liquidation
Following the previous approach, Every company has a series of assets. However, from what we have told you, you may consider that assets are only the products you have in inventory. And the truth is that it is not like that. There are many types of assets such as:
- Furniture.
- Machinery.
- Vehicles.
- Accessories from physical stores.
- Store decorations.
- IT and office equipment…
All of this can be sold, or rather liquidated, in order to obtain money in exchange.
Types of settlements
When carrying out settlements you must keep in mind that there are several ways to classify them. One of the most common divides them into three large groups:
Labor settlements
They are those that have to see with the workers you have in the company. In this case, these settlements include:
- Severance pay.
- Agreements to terminate the employment relationship that unites you.
- Voluntary liquidation (in the event that it is the worker who wants to leave). It would be related to voluntary withdrawal.
- Liquidation due to cessation of activity.
Financial settlements
related to the company accounts. Like the previous one, they include:
- Investment liquidation.
- Debt payment.
- Liquidation of the company (sale of assets to pay debts or close the business).
- Liquidation of investment funds.
- Real estate payment.
Judicial settlements
To conclude we would have this point, taking into account that a legal process occurs so that the company sell your assets and pay creditors; to distribute assets in divorce situations; or to distribute an inheritance among heirs.
Advantages and disadvantages of liquidations
Now that you are clear about what liquidations are, and what type of assets could fall into them, do you see them as a good thing or a bad thing?
In reality, these have their benefits and harms. And establishing the middle ground can help you apply them appropriately in your business.
Among the advantages that can be highlighted from liquidations we have the following:
- Orderly closure: In the sense that the company is going to proceed with the termination and it is going to do so by selling everything that it will no longer need. Thus, an orderly closure occurs when there is a work closure, for example by terminating the contract with all the workers under your responsibility; and a financial closing, because the accounts are closed and any debts owed are paid with the money obtained from that sale.
- Dispute resolution: As before, conflict resolution must always be resolved at the workplace level, with the workers; and at a financial level (closing any financial or commercial disputes that may exist).
- Resource release: In other words, we are talking about acquiring a quantity of personal and financial resources that can be used in new job opportunities. For example, once all the products and assets of the company have been liquidated, and the debts have been paid, if there is capital left, it could be invested in a new, more profitable investment, in starting another business, etc.
- financial flexibility: Here we can talk not only about liquidation due to termination, but also about that which is carried out to be able to get rid of something that is no longer wanted and which, therefore, provides greater financial flexibility. For example, receiving money that can be reused to buy new products or save for the company.
Now, it's not all advantages. There are also some disadvantages to consider before making this decision.
One of the main disadvantages that occur is the financial cost. At the labor level, when workers are liquidated, you have to pay additional compensation or benefits that you did not have to pay before, so a greater amount of money must be invested. To that we must add the sales losses that you will assume. And a liquidation implies that you are going to sell what you have at a very cheap price, so the benefits you are going to receive will be small.
Another point to take into account is the emotional impact caused by a liquidation. In the case of workers, losing their job will be something negative that can even generate conflictive situations. For its part, in the case of entrepreneurs, the loss of the business or of investments and assets can trigger a situation of failure and stress due to not knowing what to do.
The settlement process is not as simple as it may seem a priori. You have to comply with a series of legal agreements, procedures, logistics, accounting... which can be complex, especially if the company is large or had many assets. And that requires time to coordinate everything.
Now you know what liquidations are and everything they entail. Have you ever had to apply it to your business? Or have you considered it as a way to promote your eCommerce? We read you in comments.