Definition: The Liquidation Strategy is the most unpleasant strategy adopted by the organization that includes selling off its assets and the final closure or winding up of the business operations.
It is the most crucial and the last resort to retrenchment since it involves serious consequences such as a sense of failure, loss of future opportunities, spoiled market image, loss of employment for employees, etc.
The firm adopting the liquidation strategy may find it difficult to sell its assets because of the non-availability of buyers and also may not get adequate compensation for most of its assets. The following are the indicators that necessitate a firm to follow this strategy:
- Failure of corporate strategy
- Continuous losses
- Obsolete technology
- Outdated products/processes
- Business becoming unprofitable
- Poor management
- Lack of integration between the divisions
Generally, small sized firms, proprietorship firms and the partnership firms follow the liquidation strategy more often than a company. The liquidation strategy is unpleasant, but closing a venture that is in losses is an optimum decision rather than continuing with its operations and suffering heaps of losses.