How can you make money with excess production?

Goods that have been produced too much may remain on the shelves, which in turn contributes to the lack of space for other products. The need to rent additional space increases the costs. This has a negative impact on the company's development and the possibility of expanding the offer. So many entrepreneurs decide to sell the surplus.

What are surplus stocks and how are they created?

Surpluses can arise even in a very successful company. It is quite common in the clothing and footwear industry when the given accessories or models of clothes are not very popular with customers. Then they usually go to warehouses. Moreover, the production of clothes is cheap relative to the selling price, so producers often decide to produce more products. It is more profitable than producing an insufficient quantity to meet the demand.

In the clothing industry, fashion and following trends are often the cause of excess inventory. Every season, producers try to provide their customers with something new, which results in old collections being removed from the offer. It is similar in the case of telephones or other types of electrical devices, because new technologies are introduced every year, and those from several months ago become less attractive.

The formation of surpluses may also be influenced by:

• changes in the economic situation,
• evolution of consumer habits,
• marketing or warehouse errors,
• changes in regulations.

Earning on surplus production

Surpluses can be very burdensome not only because of the storage on the shelves. They also hold back production - factories cannot make new products if they have nowhere to store them. In addition, funds allocated to the production of goods that will not be sold later do not return to the producer.

You can try to sell such goods at a reduced price. A very attractive promotion will make even products with certain defects and damages arouse the interest of customers. However, such activities are only profitable if they allow the warehouse to be cleaned up in a short time. Otherwise, the seller will continue to bear the costs of storage. Introducing promotions and managing marketing are also costly, so if the goods do not sell quickly, the financial losses can be severe.

If the enterprise is unable to deal with this problem on its own, there are other solutions.

Outlet sale

Many companies decide to run outlets, where they sell products that nobody bought when they were on offer. Their prices are then usually much lower. This is a good and effective way to get rid of excess inventory, but it also has a few downsides. If you want to open an additional store, it is necessary to rent a place, hire service staff and pay bills, which involves additional costs. It may happen that the profit from the sale of outlet products is not enough to cover them. Undertaking this form of selling surplus should be a carefully analyzed decision in many respects.

Selling products to relevant companies

There are many companies on the market dealing with the purchase of goods remaining in warehouses. By deciding on such cooperation, you can get rid of the products both at the time of liquidation of the enterprise and when, after the end of the sales period, goods remain in the warehouse space, the sale of which will be difficult to sell in the future.

By choosing such a solution, you can not only get rid of the production surpluses, but also do not incur any additional costs related to their own sale. Their quick sale gives the possibility of continuing the activity, expanding the offer by introducing new products, and thus greater development prospects. This allows for better financial liquidity, effective inventory and warehouse management, and assortment optimization. The purchase concerns wholesale quantities, so in the case of even very large surpluses, the entrepreneur can count on help and provided transport.

The disadvantage of such a solution is the fact that it requires lowering the prices of goods even to a lower level than in the case of sale in the outlet; in the end, it may turn out to be more profitable. The manufacturer recovers at least some of the funds invested in producing the products, which is not certain with the first solution. The warehouse space is released almost immediately as soon as the cooperation with the appropriate company is established. This automatically reduces the cost of maintaining the warehouse. There is also no need to hire additional employees or rent a new premises. There is also no need to wait for the customer to want to buy a given item or solicit their interest.

The amount of earnings when choosing this option depends on several factors:

• type of goods - if the company is able to easily sell the product, because it is interesting and may interest a potential customer, it will be priced higher,
• defects and damage - goods stored in warehouses may be damaged; if they are defective, their value is automatically lower,
• product quality - more exclusive products will be able to bring greater profit, both to the purchasing company and to the enterprise that decides to hand them over. It is much easier to sell branded products, even if their quality is not very high or they are damaged.

Purchasing companies accept various types of products: from the footwear, clothing, chemical, cosmetics and many other industries.

Stock surplus and tax

Once upon a time there was a dispute between entrepreneurs and tax authorities. The former believed that surplus production is tax neutral, so there should be no obligation to pay the tax. Others, on the other hand, were of the opinion that products remaining in stock were taxable income. Ultimately, the court sided with the tax authorities and issued a judgment unfavorable to entrepreneurs, as it found that the surpluses constitute income obtained free of charge. This is due to the fact that the provisions relating to income tax recognize as income, inter alia, value of things, rights or benefits received free of charge or partially against payment. Having a surplus proves that the taxpayer has more goods than it results from the kept warehouse records. It should therefore be considered that he received them free of charge. The value of such products is determined on the basis of market prices used in the sale of items of the same type and species, taking into account their condition, degree of wear, time and place of obtaining them.

Entrepreneurs, disagreeing with this position, put forward the argument that when it comes to warehouse surpluses, one cannot speak of a free service, because there is no entity from which it is obtained. The court found that in the case of civil law such a rule applies, but it does not refer to tax law.

The situation is different when it comes to VAT. The scope of taxable activities includes the paid supply of goods and the provision of services within the territory of the country, import and export of products, intra-Community acquisitions and deliveries of goods. It is difficult to subordinate tax surpluses to any of these activities and therefore their creation does not result in a tax obligation.