What should I check before buying a liquidation or surplus store?

A liquidation or surplus store is a going retail business that buys returns, overstock and closeout lots and resells them. It is not a company in insolvency, and it is not the same as buying one. What you are buying is a supply chain, a set of regular shoppers and a skill for picking lots. Each deserves its own questions.

Who supplies the stock

Ask for the list of sources: wholesalers, liquidators, retailers’ return programs and online lot auctions. Find out which are written agreements and which are friendly habits between two people. Ask whether each agreement can be assigned to a buyer, and whether the supplier would keep selling to you. Your lawyer can read the contracts and tell you what transfers.

What is on the shelves

Arrange to count the inventory at closing, with your accountant’s guidance on the method. Look at condition as well as quantity: open boxes, missing parts, expired goods and recalled or regulated goods and items that cannot practically be resold. Ask how stock that does not move is handled and how long it normally sits. The BDC glossary entry on inventory is a plain starting point.

How much rests on the owner

In many of these stores the owner knows which lots to bid on and which suppliers to call. Ask who does the buying, whether that knowledge is written down and whether the owner would stay on for a handover. If sourcing leaves with the owner, the store you are buying may look different within months.

The lease and the location

Surplus stores need room, parking and a landlord who accepts their kind of trade. Read the lease for term, renewal and whether the landlord must consent to a transfer. Visit at different times of day, and watch who shops, what they buy and how they pay.