Big companies like Amazon can make life tough on small business owners. Thanks to their massive size, these companies have access to cost-cutting opportunities that smaller businesses can only dream of. 

There’s a flip side to this size-matters story, however. Big companies like Amazon tend to liquidate older stock and returned products on the cheap, which can present a major opportunity for small businesses. The businesses rising to meet this opportunity are called liquidation and returns businesses, or just liquidation businesses. Through reputable liquidation auction sites, these companies grab entire pallets full of products at wholesale or better-than-wholesale prices. They then sort out the stock and resell what they can, and often make a profit in the process.

Such businesses can be big successes, though they are not without their risks. Is this space right for you, though?

Budgeting for a business

Every business has overhead costs of some kind. Some, of course, cost a lot more to run than others; a freelance writer will spend less on coffee and a computer keyboard than a general contractor will spend on vans, trucks, supplies, and employees. But all businesses have expenses.

If you’re going to start a business, you need to make sure that you can afford to. A liquidation business can get its start as a solo operation in your garage, so you probably won’t need to take out big loans for business spaces or employees. However, you will want to make sure that you have enough saved to live on while you get your business off the ground, and that you have enough cash to cover the purchase of your first pallets of products, to pay for shipping, and so on.

It’s also a great idea to have an emergency fund. Small business owners and freelancers need to save more for emergencies than many others might. If your income isn’t guaranteed, then you need a safety net.

Growing your expertise

The pallets sold off by liquidation auction sites often have products on board that are worth more than the price of the pallet. How much you get out of your pallet will depend in part on your own expertise and skill with pricing, though. If you can quickly identify which items are worth reselling and what prices you should charge for them, then you’ll be efficient with your time, effort, and money as you list, sell, and ship those items. With some skill and a little luck, your stock will move quickly and your profits will fund your next pallet (and, ideally, help you grow your operation).

This is why many experts recommend focusing your efforts on one particular type of product. There’s a big market for electronics these days, and liquidation auctions give you a chance at a steady supply of wholesale electronics. Plus, the more electronics you sell, the more quickly you’ll get to know which products are worth selling and how much they’ll net you. This requires a bit of discipline, though. 

If you see a good deal on a pallet that does not include electronics (in this product example), then you’ll want to think carefully about whether or not you want to branch out. Ask yourself if your time and effort be better spent focusing on another electronics pallet that could let you use your expertise to maximize profits while also continuing to build that expertise. 

Choosing a lifestyle

Liquidation businesses can be profitable, but it takes a certain type of person to run one. You’ll have to be quick on the trigger in liquidation auctions, savvy about pricing, and good at writing sales copy. You’ll be working for yourself, so you’ll need a built-in work ethic and good business instincts. Not to mention, you’ll need to be ready to accept the risks of striking out on your own.

If you’re the right person for the job, though, you may find that the liquidations space is a great place for you to make a living on your own terms.