The value of business assets during a forced or even an orderly liquidation is considerably less than the value of your business today. Do you have a good estimate of your personal liability should your PG be called? Would your business assets cover the loan?
Use this free Asset Liquidation Calculator to help you evaluate your personal risk. Our Calculator will show possible outcomes and a range of values for your business assets should you be forced to liquidate. Simply review or print the instructions and use the asset descriptions as a guide for completing the Calculator.
- Instructions for use of the tool: (click to expand)
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Asterisk designed the Asset Liquidation Calculator to allow business owners and guarantors to input readily available data and view a range of discounted values for ordinary and forced liquidation scenarios.
Using a current financial statement or business tax return, input the book values into the column labeled “Input Current Values”, including any adjustments detailed in the specific instructions for each line item. Although these values are not appraisal values, these are based on generally accepted accounting principles and are the basis for valuation that your lender will be using in their assessment. To the extent possible, all inputs should be ‘as of’ the same date and as recent as possible, as any variance from this will reduce the utility of the result.
The Calculator is based on industry observations over several business cycles and is not calibrated for any particular business, industry, geography, point in the business cycle, or liquidation process. Therefore it should not be considered an appraisal, but a tool to provide directional guidance on possible outcomes from the sale of business assets in liquidation.
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| Your Business Assets |
Input Current Value |
Orderly Liquidation | |
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| Marketable Securities |
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| Accounts Receivable |
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| Inventory: Raw Materials/Work in Process |
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| Inventory: Finished Goods |
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| Machinery and Equipment |
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| Real Estate: Land |
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| Real Estate: Buildings |
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| Intangibles: Goodwill |
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| Total:Business Assets |
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| Total: Orderly Liquidation |
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| Discount Range |
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Total: Firesale Liquidation
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This calculator is designed to provide guidance and to help explain the effects liquidation can have on the value of a hypothetical business. This calculator should not be considered legal, tax or financial advice or a predictor of actual outcomes a particular business. Ranges for business asset valuation were obtained through observation of real liquidation outcomes, but can be affected by many outside factors including type of business, time of year, geographic region, health of the market, and the competency of the bank or financial advisor involved in the liquidation. Other factors that can further reduce the value of the assets can include:
- Accrued interest on the loan
- Bank fees
- Other business liens and obligations which have priority over the payment of your outstanding business loan – such as payroll, taxes, etc.
To get a better understanding of the risk to your personal assets associated with signing a personal guarantee on a business loan, take your business valuation results to a licensed CPA, attorney or certified financial planner. If you would like to discuss or refine your results with an Asterisk representative, please fill out the Contact Request in the left margin of the main calculator page.
Cash should reflect the cash balance in the operating accounts of the business. The cash balance should be reduced by the amount of any significant reserves or limitations on the use of the cash in the accounts (e.g., bank holds or IRS liens).
Marketable Securities should not include any shares traded over the counter (OTC). In addition, if the security is less than $5 per share or the shares represent a material percentage of the average daily trading volume of the security, then you should reduce the value of these securities to reflect an appropriate discount for marketability. NOTE: Shares of closely held businesses should not be included in this asset class. However, the assets of the closely held business could be valued using this calculator and that value added to this input.
Trade accounts receivable should be entered net of the allowance for doubtful accounts or reserves. If you are borrowing on a formula basis from your lender, any ineligible accounts should also be subtracted from the value you use in this field. Other (non-trade) receivables should only be included to the extent they are highly likely to be collected and are not from a shareholder or related party.
Raw Materials / Work in Process Inventory: This figure should reflect inventory that is not in final form for sale to customers. The value of this inventory can vary widely depending on many factors. Other than adjustments your lender makes for formula based borrowing, any adjustments to this asset class should be carefully considered and should not be used unless you are confident that it is appropriate.
Finished goods inventory represents the value of goods ready for sale at their cost, not the potential revenue they represent. A successful business sells finished goods at a price greater than cost to be profitable. However, under a forced sale scenario, this inventory will typically sell for a fraction of the cost because of the volume of the inventory (bulk sale), buyer leverage (forced sale), or both. Adjusting this figure is not recommended absent specific circumstances such as a contracted sale.
Machinery and equipment can range from very common to highly specialized, even at the same company or in the same line item. The value on your financial statements will reflect accounting adjustments for depreciation and will not consider the specialized nature or the value in place. You should give consideration to the accounting treatment, the age of the equipment, and whether the value of the equipment will be materially changed by its location. For example, if your accountant has used an accelerated form of calculating depreciation, the value might be understated. This might also be true for fully depreciated equipment that has resale value. In general, adjusting book values is only recommended when supported by an appraisal or other concrete demonstration of value.
Real Estate - Land: This figure should be the purchase price of the land unless you have a current independent appraisal to use for a more realistic value. Please note that dated appraisals may provide an unrealistic value and may need to be adjusted.
Real Estate - Buildings: This figure reflects the purchase price of improved real estate less depreciation. You may have a significant increase in the property value if you have owned your building for some time, but any adjustment should be based on a current appraisal, if at all possible. As noted above, dated appraisals may provide an unrealistic value and may need to be adjusted. If there isn�t a current appraisal, other reliable sources, such as local tax assessments, can be used.
Intangibles � Goodwill: The intangibles a business carries on its balance sheet reflect the amount of a purchase price in excess of the value of an asset when purchased. In a liquidation, many buyers will completely discount any value placed on intangibles. In most cases, it would be advisable to eliminate all intangible value except that related to specific intellectual property (e.g., defensible, in-use patents), unless there is considerable support for a positive value (e.g., a strong consumer brand name).
Now What?
To get a better understanding of the personal risk associated with signing a guarantee on a business loan, print out your business valuation results and share them with a licensed CPA, attorney or certified financial planner. If you would like to discuss or refine your results with an Asterisk representative, please fill out the �Request a Call Back� section in the left margin of the main Calculator page or just give us a call at 888.643.8744. An underwriter would be happy to discuss them with you.
