The inventory sits in the warehouse collecting dust when it’s supposed to be collecting money for your business. Obviously, it’s not moving the way you had planned, but is it time to cut your losses and liquidate it?
“It’s a question of do you need the cash for something else,” says Alice Magos, an analyst for CCH Inc., a business consulting firm. “If you have a large investment in your inventory and it’s not turning, then the costs are significant. When you have money tied up in inventory that’s not moving, that’s money that isn’t available to do other things, like pay bills.”
A common mistake is waiting too long to unload the inventory. You’ll be desperate and won’t be able to get a good price.
“Keep good records and know at all times what your turnover is, that way you can head off problems before they become monumental,” says Magos.
Try to induce regular customers to buy your inventory with special sales. You can also try to get vendors to take back product that doesn’t sell.
“Before buying something, get an agreement that they will take back obsolete or slow-moving items,” says Magos, who also gives business advice through her “Ask Alice” column on CCH’s Web site. These agreements are usually discounted from the price you originally paid and have handling costs factored in but it’s still better than having a warehouse full of products that aren’t selling.
When all else fails, it’s time to liquidate. Until recently, the only way to do this was to call a local liquidator and take the best offer. However, with the Internet, sites like Tradeout.com allow you to liquidate the inventory yourself, and display it to a worldwide audience. Users pay a $10 listing fee and a 5 percent commission to the site on a sale, and online logistics help get your product where it needs to go.
By selling on the Web, you are also less likely to be flooding your own distribution area with marked-down product, and less likely to have a competitor grab your products to use against you later.
“You don’t want to dump the stuff in your own area if possible,” says Magos. “The Web opens up a broader base of buyers.”
Regardless of how you liquidate, if you have products that are time sensitive or have high mark-ups, it’s a lot tougher to get rid of the stuff, so plan accordingly.
Diluting your brand name having products with your name on them sitting in discount bins or appearing in clearance advertisements can be a problem, but if you need the cash, worry about the brand later.
“If you’re pushed to the wall, don’t worry about down the road,” says Magos.
Decisive action is better. Try to avoid the problem in the first place by having good inventory management and good records. Know what is selling and keep the right stuff in inventory.
Cash flow management is key to not getting into this kind of trouble.
How to reach: Alice Magos, www.toolkit.cch.com
Todd Shryock (email@example.com) is SBN’s special reports editor.