01 Jul

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The Difference Between a Liquidation Sale and an Auction Sale

What is the difference between a liquidation sale and an auction sale?

There comes a time when certain companies may need to recover certain assets, which may be easier said than done. Fortunately, most companies in Toronto will have a few options at their disposal to recover their assets, including auction sales and liquidation.

However, some companies may be confused about the differences between auction sales and liquidation, which may lead to poor business decisions. Here, we will discuss the main differences between liquidation and auction sales, especially as they pertain to the sale of equipment, machinery, and land.

What is liquidation?

Liquidation consists of selling corporate assets over a set period to obtain monetary values that are close to market value. In that sense, a liquidation is similar to most store closings, usually involving a store selling off its leftover inventory before closing shop for good.

As for industrial liquidation sales, they usually involve the seller going over multiple offers while also negotiating offers to get the best deal. In fact, the sale of multiple assets, including machinery, equipment, and land, may take days, weeks, months, or even years to complete.

The Benefits of Liquidation

Arguably, the biggest advantage of liquidation is the amount of time that is available. That is, the seller will usually have more time to find the best buyers and more time with which to conduct their sales. Moreover, the seller will also be able to review many offers, allowing them to determine which offer is best to maximize their investment return.

Also of interest is that liquidation sales tend to work best when dealing with specialized assets, such as unique machinery or equipment. However, because such items tend to be niche, meaning more time will be required to find discerning buyers.

Disadvantages of Liquidation

The biggest drawback of liquidation is that the seller will need to find room to store their machinery and equipment before they can be sold. The seller may also be required to pay property taxes, security and utility costs, and may even need to make mortgage payments on their storage units or facilities.

Also, if the sales take months or even years to finalize, the costs can be expensive in some cases. Interestingly, some liquidation sales may transform into auction sales at some point. Once the larger items are sold via liquidation, the smaller items may be sold at an auction.

What is an auction?

More often than not, an auction is the opposite of liquidation, in the sense that items are usually sold in record time, with all items being sold via the auction. In addition, all items, regardless of whether they are machinery, land, or equipment, will simply be sold to the person or entity that makes the highest bid on said asset. As such, the seller cannot review or compare multiple offers as they would via a liquidation sale.

The Benefits of Auctions

Auctions are often employed by certain companies with excess machinery and equipment that they need to sell quickly. The entire process also tends to only take a few weeks or months, as the auction agreement, the equipment setup, and the actual auction are all organized in a very quick fashion.

Marketing is also critical in auctions, as implementing an effective marketing strategy can help generate buzz that can pique the interest of many prospective buyers and increase demand.

Furthermore, if the seller decides to take the online auction route, they may be able to expand their client base, as they may attract international bidders. Finally, bidder competition can help increase the final price, which will help generate more revenue for the seller.

The Disadvantages of Auctions

However, while auctions have many benefits, there are also some disadvantages that you should be aware of. For example, the assets that are sold may not be done so at a price that was desired or expected.

It’s important to remember that what determines the price that an item fetches is the competition among multiple bidders. As a result, weak competition may result in a much lower than expected final sale price.

Which option should you choose?

Generally, both auctions and liquidations will help establish maximize the value of their excess or idle products. However, if you are not sure which option to go with, you should evaluate your business’s present needs.

For instance, if your primary objective is to find a specific buyer for your surplus equipment, land, or machinery and have some time to explore multiple options and offers, then a liquidation may be ideal.

However, if you don’t have a lot of time with which to work, you may need to take the auction route. This tends to be the ideal solution for companies that need an expedited recovery before moving on to other affairs.

Michaels Global Trading

If you would like to learn more about the differences between liquidation sales and auction sales, please visit our website. Michaels Global Trading is a business asset liquidation boutique firm that is fully insured and bonded. We assure a high level of transparency throughout every step of the liquidation process and provide concise, clear, and timely communication for peace of mind.

As for the steps that we take during a liquidation, they will be contingent on whether you need to raise additional working capital and/or you need to pay off several creditors. The liquidation process may also vary if you have a surplus or idle assets that you need to offload.

We can be reached at 888-471-5066 if you would like to sell your assets in a timely, effective, and economical fashion, while also maximizing your ROI.

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Marlon McPherson is the CEO of Michaels Global Trading, certified appraiser and liquidator in Toronto, Ontario. With over 7 years of experience in the industry, he has worked with companies such as Druxy’s Deli, Blackberry and Thomson Reuters. Marlon is very involved in the day to day operations of MGT from marketing messages to sales meetings. When not working Marlon enjoys spending his time wine tasting, travelling and cooking at home with his family.

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