The word liquidation often conjures up images of the end of a business or the slowing of operations. And while the public rarely gets a glimpse of this process, it happens a lot. In fact, one in five businesses doesn’t even make it to through their first year, and liquidation is often their smartest and easiest way out. But did you know there are actually different types of liquidation that don’t always signify going out of business? Below you’ll find everything you need to know about liquidation processes and the different types.
What is Liquidation?
Liquidation is the process of selling off inventory, most often to pay off debts of the company as a precursor to shutting down. Typically these goods are sold off at an extraordinary discount. But as we mentioned before, there are different types of liquidation, and understanding which ones can benefit your business is crucial.
Four Types of Liquidation
There are four different types of liquidation, three of which relate to the total liquidation of all assets. However, the fourth type is regularly performed as a natural part of reverse logistics, something that all businesses face. And this is the one that benefits small business buyers, like you.
- Members’ voluntary liquidation: This type of liquidation occurs in companies that can make full payments on time, but choose to close their business regardless.
- Creditors’ voluntary liquidation: When a director or company board realizes the business can’t pay off debts they vote amongst shareholders to liquidate merchandise.
- Compulsory liquidation: When a company can’t pay off its debts and applies for liquidation “direct to the court”.
- Retail liquidation: When a company liquidates overstock and returns as part of its reverse logistics strategy.
Reasons Companies Liquidate
There are lots of reasons a company would liquidate, but the main reason is insolvency. In other words, they don’t believe they can make their regular payments or are overwhelmed by debt. Liquidation essentially turns the company’s assets into cash that is used to make these payments. But regardless of paying, these companies are unlikely to recover. There are other reasons a company might liquidate, such as:
- Heirs may not want to take over the business
- The company is not capable of continuing operations
- Bankruptcy is not an option due to at- or near-solvency
- Avoiding the stigma of bankruptcy
- Company is unable to find a buyer to take over the business
These are the most common reasons, however, there is another: liquidation for the purpose of offloading excess inventory. This is a natural part of reverse logistics that nearly every business faces. Reverse logistics is at the end of the supply chain when customers purchase and then return products. Sometimes they discount these items in the store, and other times, they are sold off by the pallet. These retail liquidation pallets are similar to those offloaded by companies going out of business. The difference is that these companies remain in business.
The purpose of this type of liquidation is solely to sell off excess and customer-returned inventory. It’s common practice with seasonal items, damaged or returned items, and overstock goods that the retailer can’t get rid of in-store. Additionally, it’s costly for these retailers to keep these items in their warehouses. With liquidation, they’re still able to profit and free up storage space for new inventory they can actually sell. This gives small businesses looking to purchase name brand inventory—for pennies on the dollar—a great opportunity.
What Happens to Liquidated Assets?
There are several types of people or companies that purchase liquidated inventory. These include:
- Individuals engaging in retail arbitrage
- Startup businesses that want inventory to resell
- Online resellers
- Large off-price retailers such as TJMaxx
- Discount store owners
- Flea market vendors
Work With Liquidation Professionals
Walmart liquidation goes through an online marketplace or online auction. Amazon, Target, The Home Depot, Macy’s, and other big companies also use their own private marketplaces to sell their inventory by the pallet up to full truckloads.
Many of these companies work with liquidation sites, like B-Stock, to power their marketplaces. B-Stock builds retailers and manufacturers their own auction platform to sell returns, overstock, and other liquidated assets. We work with nine of the top 10 retailers in the U.S., along with hundreds of others, to help manage and resell goods into the secondary marketplace. We have over 65 private retailer marketplaces across dozens of different categories and conditions to suit your business inventory needs.
Find more liquidation inventory at B-Stock.