When a business fails, it has to find ways to offset its debt. It may have outstanding loans, bills, and more that it needs to pay off in order to close up shop. Oftentimes, the best way for a failing company to do so is through liquidation.
Fortunately for liquidators, one business’s loss may be their boon. If you’re interested in reaping the rewards of running a liquidation business, you’ve come to the right place. Read on for absolutely everything you need to know before starting a liquidation business.
What is Liquidation?
Liquidation is the process a company goes through in order to sell all of its goods and assets, including unsold products, furniture and fixtures, properties, and more. Companies may liquidate for a few different reasons:
- They’re closing down and need to get rid of remaining products
- They have an excess of overstock or obsolete goods that they’re unable to sell
- They have returns and don’t want to take the time to process and re-sell them
When a company needs to settle its debts, it sells off its assets to liquidators in bulk at extremely low prices. The liquidators then turn around and sell those assets directly to consumers. They price items to turn a profit, while ensuring they’re still well below retail. For consumers and liquidators, it’s a win, win.
In many cases, liquidation businesses buy products from a 3rd party liquidator via an online wholesale marketplace. These marketplaces purchase pallets of liquidated products in very large quantities, then sell the pallets to liquidators in online marketplaces, often using an auction format.
Types of Liquidation Businesses
You’ve probably seen liquidation businesses in your local malls or shopping centers. They come in a few different forms, but a liquidation business’s trademark is bottom of the line prices. Here are a few different types of liquidation businesses that you may want to run.
“Going Out of Business” Sellers
When you think of a liquidation business, you probably picture “Going Out of Business” sellers. These are liquidators who buy out an entire store that’s closing for businesses. They set up shop in the business and, over a short period of time, they sell off the entire store. That includes any remaining product, fixtures like shelving and lights, and even forklifts, breakroom furniture, and more. They progress through deeper and deeper discounts and advertise via enormous banners with brightly colored letters that boast up to 90% off.
Once that store is completely liquidated, “Going Out of Business” sellers move onto the next.
Liquidation Stores
Liquidation stores are retail shops, whether brick and mortar or online, that purchase and resell liquidated products at a small markup. These stores don’t advertise themselves as liquidators, but rather as mega-discount stores.
TJMaxx, Ross, Big Lots, and Homegoods are all liquidation stores. They make purchases in bulk from big-name retailers of overstock, returns, slightly flawed products, and more. They then price those products to sell and turn a profit on goods that other retailers deemed unsellable.
Small Liquidators
You don’t need to have a brick and mortar store or a whole retail team to become a liquidator. The “everyman” can be a liquidator, too, thanks to in-person marketplaces like flea markets and online ones such as ebay, Etsy, Facebook Marketplace, OfferUp, and more.
Small liquidators purchase liquidated products by the palette from online liquidation auctions and then sell those products via in-person and online marketplaces. Depending on the product, profits can range from small to life-changing.
Tips for Starting Your Own Liquidation Business
Liquidation is a high-risk, high-reward business. Another business has, for myriad reasons, already failed to sell the products you’re purchasing. Now, your livelihood may rest upon your ability to sell it.
If you’re going to start your own liquidation business, you need to work smartly in order to minimize the risk as much as possible. Here are our best tips for starting a liquidation business that’s profitable.
Work with a Reputable Liquidation Marketplace
If you’re planning on buying products in bulk from a liquidation marketplace, it’s imperative that you work with a reputable liquidation marketplace. There is an enormous variety of liquidation marketplaces out there, and quality varies greatly between them. Shady wholesale liquidators are known to misrepresent low-grade, junk inventory as high-quality products and leave you at a loss.
Be sure to thoroughly research the liquidation marketplace that you’re purchasing from prior to placing a bid on a pallet. You should be able to find any complaint history on business review sites. Do your homework.
Know What Product You’re Purchasing
When it comes to liquidation auctions, you may be buying an unsold case of a single product, or you may be purchasing a pallet of mixed products.
No matter which you purchase, it’s important to read everything about the product you’re purchasing. Pay attention to brand names, sources, merchandise condition, packaging, and more. If your wholesaler sourced the pallet from a widely-known retailer, such as Amazon, Target, or Walmart, they’ll include that in the pallet description. Opt for these over pallets and products from unknown retailers.
Wholesalers also use a grading system to convey the quality of products on each pallet. Look for the following:
- Brand New: These products have no defects, blemishes, dents, scratches, or signs of age. They also come in their original packaging.
- Like-New/Retail Ready: These products have no defects, blemishes, dents, scratches, or signs of age. Any issues have been restored to manufacturer quality standards. They may come in original packaging or new white or brown boxes.
Be Prepared to Work Hard
Liquidation businesses may sound like a no brainer. You buy products on the cheap and turn them at a profit. What’s the big deal?
In truth, liquidation is a hard business. Not only do you need to have the need to have the capital to front the cost of your goods, but you also need to put hard work in to sell the products. If you’re planning on selling in local marketplaces, you need to meet with each potential buyer in order to sell the product. That means managing schedules, negotiating costs, and more. For online marketplaces, you’ll need to run a webstore, manage shipping and handling, and more.
Starting your own liquidation business is hard work, but the payoff can be major. If you follow these guidelines, you’ll be prepared to start a liquidation business with great success. And remember, you can pace yourself as you grow, it’s not a race, just make sure you’re making strategic moves and are working with the capital you have.
Author Bio:
Matt Casadona has a Bachelor of Science in Business Administration, with a concentration in Marketing and a minor in Psychology. He is currently a contributing editor for 365 Business Tips. Matt is passionate about marketing and business strategy and enjoys the San Diego life, traveling and music.
