Gary Nelson, one of 12 counselors who volunteer at the nonprofit organization SCORE has some suggestions for those wanting to step away from their business.

To begin, Nelson suggests that business owners start with a plan similar to the one that got them into business in the first place. Options include selling, liquidating or walking away from the business.

Liquidation can take two forms: either hire a professional liquidator to gradually mark down prices and sell off inventory over time or owners can do it themselves.

After 20 years in business, Sofa World owner Roger McDonald, decided it was time to move on and did so by slashing furniture prices at his downtown Wenatchee store until it finally closed in March.

Ironically, liquidating a business can prove to be lucrative, Nelson said.

“Some entrepreneurs make quite a bit of money going out of business,” he said. “They enhance their inventory, mark it down discreetly over time and the ‘going out of business’ image can draw quite a few customers.”

If a business is heavily in debt or the owners are tired and just want a quick way out, Nelson said, the owners can always file for bankruptcy.

For Nelson, that was once his only option.

Before becoming a General Electric electrical engineer Nelson owned a television and radio sales and repair shop in rural California. Since television sets didn’t receive a strong signal in rural areas, Nelson turned to nearby cities to market his products, but he then ran afoul of competitors who complained to his supplier about his attempts to sell in their area.

Ultimately, the supplier cut him off and since the repair business wasn’t as strong, Nelson was forced to protect himself from creditors.

For obvious reasons, bankruptcy ruins your credit rating, he said, and it violates the good faith agreement that an owner has established with the bank.

Instead, he advises business owners to work with their banks in times of trouble

“[Banks] don’t want to foreclose on the business,” he said. “They’re not in the business of foreclosing and taking your assets, the building, the equipment, or the accounts receivable. Banks are generally helpful it you will just work with them.”

A third option is to sell the business.

To do so requires preparing a specific list of information for any potential buyer. According to Nelson, the list should include:

• A legal description of the existing business: is it a sole proprietorship, or a partnership, or a corporation?
• Age of the business?
• What are its assets? Is it people, power, or customers?
• At least three years of financial statements, including sales, losses and cash flow.
• A current balance sheet showing assets, liabilities and net worth.
• What is the business worth?

The standard formula for worth begins with “assets minus liabilities” to determine the value of a business, but Nelson said business owners may also include the value of good will.

Good will – intangible assets – might include total number of customers, image in the community, a favorable lease or an ideal location.

“We’ve seen companies with a net worth of $25,000 and good will of $25,000,” Nelson said.

Once the list and valuation have been determined, a buyer must be found.

To facilitate a sale, some business owners turn to brokers, while others might sell the business to employees.

Or a business owner could “grow a buyer,” Nelson said.

In this case, a business owner may keep his or her eyes open for a prospective employee with the right skills, who could then be hired to run the business in the future. If they are unable to pay the asking price of the business up front, the existing owner could help the buyer take out a loan to buy the business over time.

Nelson said this type of sale has risks, but it would give the existing owner a chance to offer guidance to the new owner.

If the business takes too long to sell, the owner may want to take a good, hard look at how healthy the business really is, Nelson said.

“In general, it’s hard to find buyers for businesses,” he said. “You need to do all you can to make it present well. You’ve got to polish it up.”

That polishing may include addressing the quality of employees, or improving marketing and advertising, or making changes in a store’s inventory.

As an example, Nelson recalled the changes Stan’s Merry Mart made – not to prepare it for sale – but to improve its business. After an evaluation of the inventory, the store simply got rid of all the old stuff and brought in new stuff.

“[Stan’s] did a very good job in reassessing where they wanted to be in the marketplace,” Nelson said.

Unfortunately, most business owners opt to liquidate or walk away from their business before considering a possible sale, Nelson said. If they do consider a sale, it’s often already too late and their business is in decline.