A jewelry shop, the assets of which are mostly unsold diamonds and gold, will do much better than a machine shop with most tools 30 years old or older.
There is no particular magic involved in this valuation.The assets of a running business include its clients and their purchases.Machinery, equipment, shelving, and communications systems arranged complexly for a purpose are more valuable as a group than taken individually.The assets of a business may fetch as little as 20 cents on the dollar, possibly even less, all depending on the nature of the business and its inventory.Liquidation is the selling of the assets of a business, paying bills and dividing the remainder among shareholders, partners or other investors. Upon liquidation of certain business, such as a bank, a bond may be required to be posted to assure the proper distribution of assets to creditors.A receiver may be appointed to oversee such distribution of assets.
In this case, a receiver may be required to file a final statement accounting for the distributed and remaining business assets and expenses of liquidation in order to receive a final settlement order from the receivership court.
Liquidation means turning fixed assets into liquid assets, namely into cash.
Thus an owner selling his or her business for cash as a going concern is technically liquidating it—but in usual parlance the term is applied only to a situation where a business is closed and all of its assets are sold.
This may happen voluntarily or involuntarily; the owner may simply decide to stop doing business, puts a "Closed" sign on the shop or a message to that effect on his or her answering service, and proceeds to sell everything; alternatively the owner finds him- or herself forced into liquidation to pay off a foreclosed loan or, alternatively, assets are insufficient to cover debt and Chapter 7 bankruptcy liquidation is necessary.
It is a truism of business that a going concern is always worth more than its parts.
It's a good rule unless the business is actually losing money and cannot be turned around.