How to start a liquidation business

Six businesses that all get called liquidation

These are the common models. Same broad supply, very different jobs.

• Marketplace reseller. Buys small lots and lists items one at a time online or on local listing sites. Lowest startup cash and space, but the most hours per dollar: every item needs photos, a listing, buyer questions and shipping or pickup.
• Pallet reseller. Buys pallets and resells them whole or broken down, to other resellers or bargain hunters. Needs a pallet jack, space a truck can deliver to, and repeat buyers.
• Discount or bin store. A physical store with low prices and rotating stock. Needs a lease, staff, a point-of-sale system and steady supply, because empty shelves lose foot traffic.
• Appliance store. Sells refrigerators, washers, dryers, ranges and dishwashers, often scratch and dent or tested returns. Needs warehouse space, equipment for heavy units, testing ability and a delivery plan.
• Wholesale buyer. Buys larger lots and resells to other businesses. Fewer transactions, usually a thinner margin per unit, more dependence on relationships at both ends.
• Truckload buyer. Buys full trailers and processes them through its own stores, crews or downstream buyers. Needs real working capital, receiving capacity, inventory controls and books a supplier can trust.

Many operators end up running two of these, such as a store that retails the best units and wholesales the rest. That is usually a second step, not a starting point.

How liquidation inventory reaches resellers

Retailers and manufacturers end up with goods they can't or won't sell through their normal channel: returns, overstock, discontinued models, shelf pulls and cosmetically damaged units. Holding them costs space and money, so they sell them off in bulk, directly or through liquidation companies, auction platforms and wholesalers.

Every step between the original owner and you can add cost and remove information.

Some loads come with a manifestManifest A manifest is the supplier's list of what is on the load, typically model, quantity, condition and a retail reference value., the seller's list of what is on the load. Some don't. A manifest is a description, not a guarantee. The related guides on liquidation inventory and manifests go deeper.

Pallets or truckloads to start

Most new buyers should start with pallets or small lots. A pallet is a single shipping platform of goods, usually shrink-wrapped. A truckloadTruckload A truckload is a full trailer of inventory, typically customer returns, overstock or open-box goods, sold as one lot at a per-load or per-unit price. is a full trailer of inventory sold as one lot.

A truckload is not just a bigger pallet. It means a bigger check, a trailer to unload, a place to put it all, and many more units to test, sell and account for at once. If a pallet goes wrong, you learn. If your first truckload goes wrong, it can take the business with it.

Paperwork before your first buy

Many legitimate suppliers want proof you are a real business, and many want resale documentation on file so they don't charge sales tax on inventory you will resell.

• An entity. Many resellers form an LLCLLC An LLC (limited liability company) is a business entity registered with a state that exists separately from its owners., a company registered with the state that helps separate business liabilities from personal ones. Ask an accountant or attorney which structure fits you.
• An EINEIN An EIN (Employer Identification Number) is your business's federal tax ID number, issued by the IRS., the federal tax ID number for your business. You apply directly with the IRS, and it is free.
• Sales-tax registration with your state, and the resale certificateResale certificate A resale certificate is documentation used under applicable state rules when buying qualifying inventory for resale, so the supplier does not collect sales tax on that purchase. or exemption documentation your state uses. It lets you buy inventory for resale without paying sales tax on it, because the tax is collected when you sell to the final customer. Names, forms and rules differ by state.
• A business bank accountBusiness bank account A business bank account is an account in the company's legal name, and it is where the business's provable financial history comes from. in the company's name. Every dollar in and out goes through it from day one.

Where you will sell

Your sales channel decides what you should buy, not the other way around.

• Online marketplaces suit small items that ship easily and have clear model numbers buyers can search for.
• Local listings with pickup suit bulky goods that are expensive to ship.
• A storefront suits mixed goods and appliances, but it needs steady stock to keep customers coming back.
• Wholesale suits larger volumes, if you already have business buyers who will take them.

Pick one channel. Learn its fees, delivery expectations and return behavior. Compare channels on what is left after fees and on how fast things sell, not on the headline price. Add a second channel only when the first one is consistent.

Space and equipment

Liquidation is physical work. Before you buy, know where the goods land, how they get off the truck, and where they sit while you test, list and sell them.

• Receiving. Can a freight carrier deliver to you? A home or a building with no loading dock may need a liftgate, a truck with a powered platform that lowers pallets to the ground. Carriers often charge extra for it.
• Moving. A hand truck and pallet jack for pallets. Appliance dollies for heavy units. A forklift once you buy at volume.
• Staging. Separate areas for received, tested, ready to sell and unsellable.
• Disposal. Some units won't sell. Trash, recycling and appliance disposal can cost money, and appliances that contain refrigerant fall under EPA rules that require the refrigerant to be recovered before disposal. Know your local options before the first load arrives.

Space is a cost new operators often leave out. Know what it costs each month before you decide what you can pay for inventory.

Know your numbers before you buy

The number that matters is landed costLanded cost Landed cost is what a unit really costs you once it is in your building and ready to sell, purchase price plus freight, handling, parts and the cost of what could not be sold.: what each sellable unit really costs once it is in your building and ready to sell. That is the purchase price plus freight, handling, parts and the cost of units you can't sell, divided by the units you can actually sell.

Landed cost becomes your COGSCOGS COGS (cost of goods sold) is what the items you actually sold cost you, not what you spent on inventory during the period., cost of goods sold, in the month the unit sells. Price against landed cost, not against the invoice.

Then check cash. Working capitalWorking capital Working capital is the money available to run day-to-day operations: current assets minus current liabilities. is the money available to run the business day to day: what you can turn into cash soon, minus what you owe soon. Inventory you have paid for but not sold is money you can't use for the next buy.