How to Liquidate Goods

Liquidating goods frees up inventory and generates cash.

Managers try to purchase inventory goods that they can sell quickly and at a profit as part of the normal cash conversion cycle of a company. However, sometimes you can't sell inventory as fast as you desired. Dead inventory keeps your cash tied up in unsellable goods, which Investopedia warns is bad business. In addition, a small number of states and localities impose inventory taxes as well as the IRS in certain value-added situations. A company sitting on a lot of slow-moving goods sometimes decides to liquidate the items to generate cash, lower tax burdens and reduce the amount of dead inventory.

Instructions

1. Lower the price of the goods. Cheaper product moves faster. Start at a low discount rate--say 25 percent-- then increase the discount the longer the product sits on your shelves. Alternatively, sell the goods at a massive discount off the bat to encourage the product to fly off the shelves.

2. Advertise your liquidation sale in the local media in conjunction with lowering prices. Draw eyes, hands and wallets to your location to speed up the rate of sale. If you have large amounts of goods, advertise the sale price in trade publications to tempt other suppliers and manufacturers to snap them up.

3. Contact a professional liquidator. Liquidators often have large contact lists and can move product quickly. Sign a contract with the liquidator that has him find a buyer for your goods in exchange for a percentage of the sale.

4. Transfer the product to another location within your company if the goods are selling well in another area. Typically, "selling" goods to another physical location in the same company allows your location to free up the inventory cost of the goods and claim it as cash.

5. Donate the goods to charity. While you don't earn immediate income for donations, you can deduct the value of the goods from your tax total for the year. However, there are restrictions to the amount a business can deduct. Consult with an accountant prior to donating to ensure you're able to deduct as much as possible.

References

• Effective Inventory Magazine: Liquidating Non-Moving Inventory
• Investopedia: Understanding The Cash Conversion Cycle
• Marvin F. Poer Company: Georgia - State Business Inventory Tax Exemption Approved
• "The Mississippi Business Journal"; Inventory/Franchise Tax May Fall Between Cracks Again; Chandler Clay; February 2010
• Internal Revenue Service: Inventory - Manufacturing Tax Tips