Take the right steps in getting rid of stagnant product that cuts into your bottom line. Product philanthropy is one way to move unwanted product in a cost-effective manner while securing invaluable tax deductions.
Even the most efficiently run businesses struggle to move excess inventory. Most businesses know all too well that overstocks clog their warehouse and drag down profits. But they don’t have a great way to deal with the problem. When it comes to moving merchandise efficiently and cost-effectively, be aware of the 10 top dos and don’ts:
1) DON’T DISCOUNT TOO DEEPLY
When you get in the habit of offering discounted products to buyers, you’re training them to wait for your next price reduction, rather than pay full price. And again, it’s damaging to your brand to hawk your nonperformers. You want customers to associate your name with your best products.
2) DON’T LIQUIDATE IT
Selling inventory for pennies on the dollar is a losing proposition on several fronts. Besides the loss you’re taking, you run the risk that your old stock may land in a secondary market and compete with your current products. If you’re a wholesaler or distributor, you risk alienating customers, too.
3) DON’T IGNORE IT
When a problem isn’t easy to fix, it’s easy to ignore it. But your stagnant stock is very real, and it’s taking up very real storage space. The longer you ignore it, the larger and older that accumulation will become. Time is money. Take action.
4) DON’T KEEP MARKETING IT
Your customers have already expressed disinterest in your stagnant merchandise. They aren’t likely to change their minds as the products age. Focus on new items that are more likely to sell.
5) DON’T SELL IT TO EMPLOYEES
It’s one thing to offer employees a discount. It’s another to offer employees rejected merchandise, which sends a negative message. This strategy doesn’t make a real dent in inventory anyway.
6) DON’T GIVE IT TO EMPLOYEES
Unless you want to see your products up for sale on websites like eBay and Craigslist, don’t give moderate amounts of merchandise to your workforce.
7) DON’T LEASE MORE SPACE
You’re already losing money on this merchandise. Why throw good money after bad? When you lease additional warehouse space, the only one who wins is your landlord.
8) DON’T DUMP IT
Trashing your merchandise in a landfill is wasteful on many levels. It’s bad for your bottom line, and it’s bad for the environment. And there’s always the risk that your products will magically reappear in a secondary market.
9) DO DONATE IT (IT’S TAX DEDUCTIBLE)
Donating goods to charity is a big do. For one thing, “product philanthropy” is tax deductible. If your business is an S corporation, partnership, or LLC, you’ll qualify for a straight cost deduction. If your business is a C corporation, you can receive up to a twice-cost federal tax deduction. That’s according to IRC Section 170(e)(3), a little-known section of the tax code.
10) DO DONATE IT TO A GIFTS-IN-KIND ORGANIZATION
Gifts-in-kind organizations are nonprofits that solicit donations of new merchandise from corporations and redistribute it to member charities.
According to the IRS, donated product cannot be resold, bartered or traded. It must be used in a manner consistent with the charity’s mission. With gifts-in-kind organizations, you don’t have to worry that your products will end up back on the open market.
In short, donating inventory not only creates a tax deduction and gets products off of your shelves, it puts them right in the hands of those who need them – and that’s a win-win for everyone.
Gary C. Smith is president and CEO of the National Association for the Exchange of Industrial Resources (NAEIR), the largest gifts-in-kind organization in the United States. Galesburg, Illinois-based NAEIR has received donations of excess inventory from more than 8,000 U.S. corporations and redistributed more than $3 billion in products to non-profits and schools. You can read more about the organization by visiting www.naeir.org.