Small Business Lending Articles

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It wouldn’t be an overstatement to say most businesses got caught with too much inventory at the beginning of the recession. This was and continues to be a problem for many smaller businesses, though. Larger companies have inventory control systems in place that track, regulate and if necessary drive inventory down. Less sophisticated systems are mostly based on prior activity, which can result in too much or too little inventory when current sales volume changes aren’t factored in.

There is Such a Thing as Too Much

What causes excess inventory? A sharp drop in sales is an obvious culprit, even for well-run companies. Buying more inventory than usual because it’s coming at a reduced price can contribute to overstock. The thing to remember is that inventory value usually decreases the longer you own it (unless you happen to sell something that obviously gets better with age, like wine for example). You can get rid of it at a discount, but if demand increases again, you may find it hard to get your pricing back up to the original price level due to customer expectations already being defined, which will cut into profits. Also think about storage costs and the decreasing value of merchandise that’s dated.

Here’s five quick ways to reduce excess inventory without the big losses:

1. Sell to an inventory liquidator. An inventory liquidator will buy your excess goods and re-sell it, usually at a discount. There are several things to keep in mind if you decide to go this route. First, make sure you know the value of your merchandise and how much you want for it before entering into any negotiations. Consider the cost of delivering your inventory to the buyer as well. If you need cash quickly, inventory liquidators can be helpful, just know the risks.
2. Sell it online. If you don’t have enough to sell to a liquidator, try selling your excess products through third-party sites. For single items, try listing products on eBay and Craigslist. Another marketplace for slightly larger quantities is Overstock.com.
3. Offer big discounts. This happened a lot when the recession was at its peak. Products were put on sale for unbelievably high discounts, sometimes as high as 50 percent or more. Only offer this type of sale for a short period and avoid doing it regularly, otherwise you will find it difficult to sell anything at full price. When customers expect that kind of discount because you offer it too often, they actually would have a point, though that doesn’t help your bottom line.
4. Repackage and Reward. Repackage products that can’t be re-sold—things with short-shelf life like perishable foods, things that grow and rot quickly, etc. Offer these kinds of items as rewards for long-time or new customers.
5. Give a donation for marketing purposes. If you absolutely can’t sell the products or services, donate them to organizations and turn it into a public relations event to raise your visibility. Some examples include donations to local community events, schools or libraries.