When the economy faces challenges, some companies seem to do well, while others struggle to survive. Regardless of their situation, an auction is one tool that can be used by any company to generate cash. Liquidity can help a struggling company regain a foothold or provide a cash injection to a strong company to help it take its business to the next level.
Smart Business spoke with Dick Kiko, CEO and broker of KIKO Realtors, Auctioneers and Advisors, about how auctions can help companies in both a strong and a challenging economy.
What can an auction do for a company performing well?
During a challenging economy, even strong-performing companies may have capital needs. These companies need to review their portfolio of nonworking assets and liquidate them in order to buy new assets — equipment or inventory that is needed to move the company into new markets to take advantage of the opportunities brought on by the economic disruption. It also makes sense to convert assets to cash so they can quickly make other moves, such as acquiring a competitor who is in a weaker cash position. In either scenario, auctions generate liquidity through attracting interested buyers to aggressively compete to buy the assets in a controlled and accelerated timeline.
How do auctions provide relief for a struggling company?
As the economic outlook becomes tough for a company, time is of the essence. An auction gives the seller control on setting the time and terms of the sale, and they can act quickly to generate the liquidity needed to infuse capital into the business. For instance, a business could leverage an auction to sell less-desirable inventory, nonworking capital or real estate to generate liquidity and then use that money to purchase inventory that’s moving faster in the current market. An auction can create a sales event and turn around the proceeds to a seller within 45 to 90 days.
How can auctions help companies that are facing pre-foreclosure or bankruptcy?
Pre-foreclosure and pre-bankruptcy are stages at which the owner is about to lose control of the company to lenders and lawyers. But if they reach out to a professional auctioneer/adviser at that stage to analyze the situation and work to craft a solution that’s favorable to both parties, it may not be necessary to go all the way to a legal action. An auction can minimize the problems and maximize the returns for everyone.
During the last recession, selling assets through a short sale, meaning the sale price of an asset falls short of the secured debt, became more prevalent. Today, more lenders are willing to work with borrowers to explore a short sale when an auction adviser is involved. To help mitigate losses, these discussions should happen as soon as the owner sees trouble on the horizon.
Assets seized through foreclosure or bankruptcy are typically sold through sheriff’s sales, which aren’t very well marketed or attended, often leading to a no-sale or a credit bid. Today, an auctioneer can be appointed in lieu of the sheriff. They craft a marketing plan to promote the sale to the public, thus creating better results for the parties in the legal action and attempting to minimize any deficiency to the borrower.
What are the signs that a company should reach out to an auctioneer to discuss its liquidity issues?
Regardless of the economic health of a company, it can benefit from evaluating nonworking capital on an annual basis. This allows them to determine what assets or real estate are no longer functionally important and if the company would benefit from converting them into cash.
Today, companies face an unstable economy and might soon begin to feel the ice under their feet getting thinner. Don’t wait until the ice breaks and you are facing legal action. Talk with an auction adviser to review the situation and formulate a strategy to deal with it directly. Lenders appreciate the effort and will often work with borrowers to craft a plan. Liquidating assets via auction frees up cash to be used to benefit the owner’s needs. Auctions work.
Insights Liquidity is brought to you by KIKO Realtors • Auctioneers • Advisors
