Liquidation ? a very scary word for most online sellers. But the reason we get nervous is simply that we really don't understand what liquidation is. One man who is extremely familiar with the process is Bob Nelson, president of retail consulting firm Power Retailing (http://www.retailing.com). Nelson explains, "Liquidation is simply getting rid of and converting inventory and other assets into cash." It's a practice that allows manufacturers and retailers to maximize the value of their assets.

Who's Liquidating and Why?

There are many reasons companies choose to liquidate ? order cancellations, bankruptcies. Maybe their business is expanding and needs cash. Oftentimes, companies that are relocating will liquidate supplies, equipment, even inventory. It's actually more financially advisable for them to just walk away than to put the time, effort, and money into moving them. It's a good idea to know why the items you're looking at are being liquidated ? there may be a perfectly valid reason, but you don't want to get stuck with goods you can't move either.

What Am I Looking For?

You want to find off price, overstocks, out of season, promotional - liquidated products. How do you find suppliers with surplus goods, and manufacturers with overstocks and cancelled products? You can look at courts dealing with bankruptcy and insurance companies dealing with excess and damaged merchandise. Sometimes U.S. Customs will have unclaimed goods, or the police will have stolen property you can purchase at deep discounts.

What Should I Know When I Buy?

When you buy liquidated goods, it's critical that you know whether or not your supplier is legitimate. Nelson suggests, ?Ask for references of people who've already done business with them.? He also recommends checking out their reputation and type of operation ? how long they've been in business, what they carry, if they have volume discounts.

Above all else, know their policies. What are their protocols regarding returns, cancellations, guarantees? What about exchanges? Credits? Do they stand behind their products? The most important thing is to be comfortable with the company, to feel that you can work with them.

4 Tips for Shopping Liquidated Items

1. Know your customer base.

You have to give them what they want, not what you want personally.

2. Stay in the niche you've carved out for yourself.

If your E-Biz sells athletic apparel, don't try offering blenders on your site just because you found them at closeout prices.

3. Don't try to compete on price alone.

While liquidated items can give you a pricing edge, you just can't beat out the big retail stores. So you need to have other features to draw your customers in: easy returns, good customer service, a well-laid-out web site, etc.

4. Have a flexible business plan when working with liquidated items.

If you stock certain quantities of specific products ? types, colors, styles, brands, and models ? for your E-Biz, you can't plan to consistently fill those with liquidated products. The items change too frequently. Make liquidations only one source for acquiring your inventory ? you can spice up your product line and get some amazing deals for your online store.