Liquidation value can shape critical business decisions
Most business valuations focus on the company’s value as a going concern, but some situations call for a different premise of value. When a business is struggling to stay afloat, it may be more appropriate to evaluate liquidation value. Here’s a closer look at situations where business valuation professionals might use this alternate premise of value and how it can help owners and other stakeholders make better-informed decisions.
Recent trends
Liquidation value has become increasingly relevant in today’s uncertain marketplace. Total U.S. bankruptcy filings increased 11% in the 12-month period ending December 31, 2025, with business filings rising 7.1%. Meanwhile, recent data from the American Bankruptcy Institute shows commercial Chapter 11 filings and small business restructuring elections climbing sharply in early 2026.
Certain financial trends — such as declining revenue, recurring losses and impaired asset values — may suggest that a business would be more valuable if it were liquidated. In short, the business may be worth more “dead” (in liquidation) than “alive” (continuing its current operations).
Defining liquidation value
The International Glossary of Business Valuation Terms lists the following two types of liquidation value:
1. Orderly liquidation. In this case, assets are sold piecemeal over a reasonable period to maximize proceeds.
2. Forced liquidation. This premise of value assumes assets will be sold as quickly as possible, such as through an auction.
Timing, bankruptcy laws and judicial mandates help determine what’s appropriate for a particular situation.
Estimating liquidation value
When measuring liquidation value, an expert typically starts with the distressed company’s balance sheet. The book values of liabilities generally are accurate, but assets may require adjustments to estimate recoverability and current market values. The expert also considers unrecorded items, such as internally generated intangible assets, IRS claims and pending lawsuits.
If a company decides to liquidate, the valuator also must factor in liquidation expenses, such as lease obligations, severance pay and professional fees. Typically, money is set aside in an escrow account for these incidentals before the company distributes liquidation proceeds to creditors and investors.
Providing valuable insights
Liquidation value may serve as a “floor” for business value. It also can help owners decide whether to file for Chapter 7 (liquidation) or Chapter 11 (reorganization) under the federal Bankruptcy Code. And it helps stakeholders evaluate the viability of spin-offs and mergers, out-of-court loan workouts, management buyouts, and reorganization plans.
Business valuation professionals can advise distressed businesses on such issues as negotiating debt restructuring with creditors and coordinating bankruptcy filings. They can also provide fairness opinions for management buyouts and third-party acquisitions and help implement reorganization plans.
When creditors file fraudulent conveyance lawsuits, valuators can help determine the facts by performing a solvency analysis. The expert’s subsequent solvency opinion provides an assessment of whether the allegedly fraudulent transfer caused the company to become unable to service its debt obligations or continue normal business operations. Valuation experts might also work with, or serve as, court-appointed receivers and turnaround consultants.
Valuators can even help potential buyers determine a distressed company’s strategic value — or its value based on the specific buyer’s investment requirements and expectations. For example, a buyer may be willing to pay more than liquidation value for a company that offers synergies and economies of scale with its existing operations.
We can help
Liquidation value is a practical benchmark for making timely, strategic decisions about restructuring, selling or winding down a business. Experienced valuation professionals can help business owners and their legal advisors assess available options, quantify risks, negotiate with stakeholders from an informed position and preserve value. Reliable, independent valuation insights can make all the difference when businesses face difficult decisions. Contact us to learn more.
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