Liquidation is a process companies go through to end the business or remove items completely from operations. Inventory liquidation may be a common activity for companies needing to get rid of inventory. Obsolete, old or broken inventory items are all subject to a company’s liquidation process. At other times, excess inventory may need liquidation to prepare the company for new items to offer customers. When liquidating inventory, a company does not usually get full price for the items or break even, sometimes selling these items at below cost.
Request a physical count of all merchandise needing liquidation. This allows for accurate accounting to determine how much loss a company can expect from liquidating inventory.
Compute the total inventory costs and the per unit cost of all inventory items for liquidation. Accounting records should be able to provide this data.
Mark the inventory to cost when liquidating. This allows the company to attempt to break even during liquidation.
Contact wholesale buyers or inventory liquidators. These companies often purchase old inventory items during liquidation processes.
Negotiate prices with buyers. Obtaining the best price possible during liquidation reduces potential loss from this process.
Complete the liquidation by donating or throwing out the remaining inventory. Companies can either claim a tax deduction or use the loss to offset income.
Contact a public accounting or law firm to help with the liquidation if necessary. These outside sources can provide information on how to use the liquidation process to maximize the company’s benefits from the process.
- "Fundamental Financial Accounting Concepts"; Thomas P. Edmonds, et al.; 2011
- "Cost Management: Strategies for Business Decisions"; Ronald Hilton, et al.; 2006