Why Liquidation Companies Get A Bad Rap

24 Jan 2018
Why Liquidation Companies Get A Bad Rap

Business liquidation should be seen as a fast way for converting surplus inventory into working capital, or a solution to sell off business assets to pay off debt, avoid bankruptcy and start fresh. Typically liquidation companies would be considered heroes who aid businesses to achieve their goals. Sometimes this isn’t always the case.

There is a stigma attached the term ‘liquidation’ for both the businesses going through the process of selling of their assets and the business practitioners assisting them.

The Business Liquidation Process

Liquidation practitioners usually only get contacted when a company is in trouble. The company or organisation may be looking to sell:

  • Products with defects, such as those with design flaws or other technical issues that cause high return rates
  • Surplus inventory in the warehouse, such as when a wholesale over estimates the demand for a new product and buys a lot of it resulting in overstocks
  • Business assets in order to raise capital to keep the business afloat or to pay off debts

To the eyes of the misinformed, liquidating for any of the above reasons may be viewed as a result of incompetency. So companies looking to liquidate often want to get through the process fast, causing them to get less than the fair market value for their assets.

Many practitioners often take advantage of the situation to buy the items at extremely low prices and then resell them with huge margins. Consequently, they are seen to be taking advantage of suffering business instead of trying to save them for the good of the economy.

Not All Liquidators Are Bad

On the other side of the coin, established business liquidators can actually help businesses get a fair market value for their assets. With a large, possibly global network of potential buyers, they can certainly help move your products in such a way that is as quick and painless as possible.

Keep in mind that the cost of liquidated items is usually about 20% less than the actual market value to grab the immediate attention of consumers. Any items that are not bought within a few weeks have to be sold at a greater discount. So naturally, the faster you sell, the more capital you raise. The longer an item stays in storage, the market price will gradually become lower.

Win-win Situation

When a liquidator takes over a company’s assets, they are essentially taking a chance because they need to sell above the quoted price for them to make a profit. But as long as businesses are able to raise funds from the sale of their assets, and liquidators can get decent margins from the trade, everybody wins!

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