Starting a Liquidation Business

Mixed race businesswoman talking on cell phone
••• Ariel Skelley/Blended Images/Getty Images

Running a business is hard enough, and keeping costs low is key to turning profits and staying afloat. One potentially profitable way to launch a new business is to buy liquidation goods at bargain basement prices that you can resell for a profit. Luckily, there are lots of opportunities to find other businesses that are looking to cash out and unload inventory at pennies on the dollar.

Find Liquidation Wholesalers

First, look online for websites that will lead you to reputable liquidation brokers. A simple Internet search will yield dozens of websites that promise daily auctions of liquidation merchandise at deep discounts, but the most important thing in choosing your supplier is to make sure it’s reputable. Get the contact information and place a call or send an email; if you don’t get a response, or it just doesn’t “feel” right, move on. Check other websites for reviews about the online merchants you’re considering.

Are they correctly representing the merchandise they’re selling? Are there complaints against the vendor? Does the merchant have references? In short, check them all out to make sure you don’t get a bum deal.

Decide What to Buy

Decide what types of goods you plan to buy. Just as important, know how much you plan to buy; depending on your supplier, you may be able to buy as little as one case, or you may be required to buy dozens of entire pallets. Total cost is important, too; you should find out the cost of the merchandise itself, as well as “hidden” costs like shipping, that can impact your profit margin. Don’t limit your search to one website or one vendor; check out similar products being sold by other vendors, either online or in your neighborhood.

And once you take delivery, where will you store it?

Know Who You’re Buying From

Who’s liquidating this merchandise? A retailer? The government? Why are they liquidating? Are you buying from them directly or working through a receiver? It's typical to work with a reputable liquidation broker that deals with large quantities of liquidated goods. It’s important to understand whose goods they're selling and why, so you know what you’re dealing with.

Know What You’re Selling

Where do you plan to sell it? And for how much? Calculate the total cost to determine the amount of profit you expect to make. Make sure that the goods you're buying have a ready market that you deliver your goods to quickly. Also, inspect what you plan to buy so you know the quality of the merchandise; ensure the quality is decent and corresponds to the price you plan to charge. This is especially important with electronics and flat-packed furniture, which have high return rates.

Many times, the broker in charge of the liquidation won't check the quality of the merchandise being liquidated and will simply mark it as “unchecked” or give it some other generic term, so it’s up to you to do the quality control. If the goods have been checked and graded, you’ll pay more. One good rule of thumb is to buy as far up the liquidation chain as possible. The more times your merchandise has changed hands, the more likely it's poor quality or won’t sell.

Don’t Get Taken

Check out the price of similar items at other sites to ensure the price you’re paying is competitive. Market research is critical to ensure you don’t get overcharged and that you’ll have a place to sell your merchandise once it’s in your hands.

Buying low and selling high is at the core of any successful business. But if you're going to be successful, you need to know as much as possible about what you’re buying and how you plan to sell it.