In the traditional sense, a liquidation occurs when a company closes or dissolves and converts all assets to cash. It is also possible to liquidate only the inventory, while the company remains in business.This is more often the case when using the terminology “inventory liquidation” or “liquidation sale”. There are many reasons a company may liquidate inventory, and we will review them here.
1. Generate Cash. Running a business can often feel like a balancing act of balancing free cash flow against operating costs. Under certain circumstances when things might be especially difficult it would not be uncommon for a company to be short on cash because money is tied up in other assets. Sometimes in this situation the quickest and easiest way to generate fast cash is by liquidating inventory. When excess inventory is sitting in the warehouse not generating profits, it may make sense to liquidate this merchandise so it does not become a further financial burden to the company. Surplus inventory or obsolete inventory that is not contributing to the bottom line should be disposed of and converted to cash.
2. Discontinued Products. Customers are never interested in what’s old. They only want to know what’s new and exciting. To this end it is imperative companies regularly review their lines for closeouts, excess inventory and overstock merchandise. This old inventory should be discounted, liquidated, and replaced with fresh inventory that will be in demand. Old inventory that does not sell will continue to sit idle in the warehouse and take up valuable space. It makes more sense to discontinue this inventory by contacting closeout buyers or other companies that will pay cash and buy excess inventory.
3. Recover Valuable Warehouse Space. As the commercial and industrial real estate markets continue their seemingly endless expansion, the cost of warehouse space keeps climbing. It is more important than ever to turn over inventory as often as possible, and re-invest this money into more merchandise to get the most out of this space. Obsolete inventory and dead stock that sits idle in the warehouse not only costs money because it ties up valuable warehouse space, but you also miss sales opportunities for potential sales and profit on newer goods. Old inventory and closeouts should be regularly reviewed and liquidated to buyers for overstock merchandise.
4. Moving Warehouses. Sometimes companies are forced to liquidate inventory because they are moving warehouse locations and it is cheaper to get rid of old inventory than move it to the new location. Excess inventory and dead stock that is no longer selling should always be liquidated and converted to cash.So when moving, it is especially important to identify this inventory and sell it to companies that specialize in buying overstock and excess merchandise. Even if they only give you a fraction of the original cost, this would make more sense than moving dead stock to a new location where it will tie up your new warehouse space. Identifying warehouse waste is a key component to avoiding having to liquidate inventory.
5. Business Closing. When a business is shutting down it is necessary to liquidate inventory. At this end stage of the business you will not have as many options for selling closeouts as you once did. At the point where a company is going out of business the best options would be to contact liquidation buyers and other buyers for closeouts, and provide them with all details of what you have in the warehouse so they can make you an offer to buy all of the remaining inventory. Unfortunately under these circumstances you may only be looking at recovering pennies on the dollar, but you may have no choice. You can also consider liquidating inventory by having an auction or another possibility may be to consider donating the inventory.