You also want to create columns that will allow you to list the year each item was bought or placed in service, its condition, and any deductions that have been taken. Note particularly items that you purchased with your own money (rather than with business funds), or that you previously bought for personal use and then converted to business use. Create a description column and use key words that are useful to identify particular items. For example, if you have two printers which are different colors, you might include the color in the description. Serial numbers, brand names, and other such information should be included in the description of the property where applicable. Put the tax category of each item in a separate column. You’ll want to identify whether each piece of property is a capital asset, a depreciable business property, business or commercial real property, inventory, or raw materials. Each of those categories is treated differently for tax purposes. Talk with an attorney or accountant if you’re unsure in which category particular items belong.
Intangible property also may include valuable contracts with clients or outstanding debts owed to your business. These types of assets typically won’t be a consideration in terms of selling business assets unless you are in the process of liquidating your business and closing your doors for good. Much intangible property, especially intellectual property, can be difficult to value because you may have put significant time and effort into research and development. Patents typically have a value that can be measured in terms of the potential profit that can be made through exclusive use of the patented technology for the lifetime of the patent. If there are several years of patent protection left, it potentially is a valuable property.
Even though you’re using something in your business, it may actually belong to someone else. If that’s the case, you don’t want to sell it. For example, if you run your business as a general partnership, and your partner purchased two computers for the business from their own funds, it’s up to them whether they want to sell those computers. If they do, that money technically is theirs unless they choose to pour it back into the business. If a property is financed or is being used to secure another debt, you’ll need to check your records to determine how much is owed on the property. If you owe more on the property than the item is worth, you won’t be able to sell it. On the other hand, if you want to sell an item that is worth substantially more than what you owe on it, you’re free to sell it provided you pay the creditor the amount you owe them.
If you’re closing your business and liquidating all assets, essentially all assets are salable and you can skip this step. If you’re just selling assets to free up a little more cash for the business, focus on those with no liens and that have the most value. These items likely will bring you the most cash. Typically, if you’re not liquidating your business you don’t want to give the appearance that you are. Selling significant assets could give that impression and make your clients or customers feel less secure about continuing to give you their business. Other property that probably should go in the “salable” pile includes items that are outdated or in need of an upgrade. For example, if you have three computers, two of which are more than five years old, you probably want to sell those old computers and raise some cash to replace them with newer, more efficient machines that will be under warranty.
To determine your tax basis, you’ll have to go back and look at your records to see exactly how much you paid for each asset, or the value you claimed on your taxes. The difference between the amount that you originally paid for an asset and the amount you ultimately receive from a buyer is your gain (or loss). Gains count as income on your taxes. Losses, on the other hand, are deductible, but keep in mind that you may not be able to deduct all of your capital losses. Consult an attorney, accountant, or tax adviser before you sell any assets if you’re concerned about the tax treatment of any money you receive.
You can categorize your assets according to general grades that correspond to the condition of each item, such as excellent, good, fair, and poor. Items in excellent condition typically are considered to be as-new, clean items with little wear and tear. In contrast, an item in poor condition would be something that wasn’t currently in working order and would need a lot of repair to get it back into working order. At the same time you’re evaluating the overall condition of each item, you may want to consider whether it is purely for business use or could be adapted to personal use by a member of the general public. This information can help you determine how you want to advertise the sale of your assets, and where advertising would be well placed. For example, if you own a tech firm and want to sell some old computers, they obviously can be adapted to personal use. However, any specific or highly technical peripherals that are typically only used in a professional environment may not find a buyer among the general public.
For production machinery or other items used specifically in your industry, you might want to look at industry and trade magazines to get a sense of how much these items are worth. Company vehicles or office equipment such as computers have price guides that provide a nearly universally recognized assessment of value based on the age and condition of the property. Online auctions and similar guides can provide information about fair market value for general supplies and property that can be easily converted to personal use.
Keep in mind that if you’re liquidating all or part of your business, your assets typically will be worth about 20 percent less than they normally would. For liquidation sales, you typically will be best served by hiring a qualified appraiser who can evaluate all assets and offer a dollar amount that the business’s assets are worth. This total liquidation value allows you a little more freedom to play with the margins on individual items than you have if you’re just selling a few items but not closing your business entirely. Particularly in the case of a liquidation appraisal, but for any items that you get a professional appraisal done of the value, make sure you get a written copy of the appraisal report that you can show to potential buyers.
You’ve likely seen the blitz of advertising that occurs when a company is going out of business. If you’re liquidating, you typically aren’t going to be choosy about where you advertise or who your buyers are. If you have particularly technical items, such as production equipment, you probably have a better chance of getting the attention of people who are actually interested by advertising the sale in trade journals or on websites particular to your industry. You may want to forego advertising entirely if you’re only selling a few assets to raise cash for your business. Instead, you can network with clients, friends, and colleagues to find a direct buyer for the few items of property you want to sell.
One benefit of hiring a liquidation company is that you will be working with professionals who have conducted many liquidation sales and know how to organize and manage the sale to get rid of your property while controlling profits to reduce the capital gains you have to report on your business’s taxes. Hiring a professional broker or liquidator also takes a lot of the responsibility off your shoulders, because you don’t have to worry about running the sale yourself and can instead focus on the other aspects of closing your business. Using a liquidator or broker also allows you to take advantage of the valuation experience, formulas, and procedures they have developed over time with experience, sparing you from essentially having to “reinvent the wheel” by figuring all of that out on your own.
While you may not necessarily be too concerned about a loss on a particular property item, realizing significant capital gains can really cost you come tax time. The easiest way to keep your gains and losses in check is to sell your business assets as close as possible to fair market value.
Your records should provide a description of each asset sold, the date it was sold, the sales price, and the accumulated depreciation for the asset from the date it was purchased. For each asset, you may have to go through several years of tax returns to determine the total depreciation. If you have a tax consultant or accountant, they typically will provide this information for you. In addition to this information, include selling fees or advertising costs associated with the sale of that particular asset.
