No matter how much care you take, your retail business eventually has to deal with damaged merchandise issues. While you can’t eliminate this expense entirely, you can and should take steps to minimize occurrences of product damage. You might also consider a game plan to put into action when damage occurs. This action helps recoup some of your money and prevents damaged items from going out in the trash.

1. Insure Your Merchandise From Natural Disaster Damage

Businesses that maintain inventories always need property insurance policies. These policies typically pay out when items you have stocked incur damage due to natural disasters. A few examples of these natural occurrences – heavy snow caving in your roof; small or large fires, and flooding due to weather issues or water lines breaking in your establishment. Coverage varies depending on the terms of the insurance policy you choose, and this makes it important to check your policy for the exact details as they relate to your business.

If you have specific requirements or potential issues, be sure to address them with your agent when you purchase the policy. You should also think about adding the cost of the policy to your regular budget to ensure your coverage remains up to date. While property insurance can’t protect you from employee damage, you can also insure customers’ packages so you don’t lose money when merchandise incurs damage in transit. Having the proper policies in place can help reduce the risks of losses if a disaster renders your in-stock items unsaleable.

2. Sell Damaged Merchandise As-Is

You can also recoup at least some of your losses by selling damaged merchandise at a discount. When determining whether you should sell this inventory, it’s important to consider the type of product before you decide whether to sell or trash it. For products such as cribs that present obvious safety concerns when damaged, selling them doesn’t make sense. The risk you take in these instances in terms of your business liability often proves far worse than the potential rewards.

If you have damaged items such as clothing and home decor with minor superficial issues, those products typically pose a safety or liability risk. You might put this less-than-perfect merchandise in sections of your retail shop dedicated to clearance sales, and you can add old merchandise that needs to go as well. Sidewalk sales on tables in front of your store also make sense, as they often lead to customers digging through in search of great deals. While shopping your clearance racks, those customers might also drive sales by purchasing some of your regularly priced items, which can also help balance out your losses.

3. Donate and Deduct Damaged Merchandise

Donation offers a viable alternative for items you can’t sell due to damage. When you donate these items at fair value to charitable organizations, they typically provide a donation receipt that entitles you to a break on your business taxes. Though typically lenient on what they accept, most charities require the products you donate be in good condition to count as a tax deduction.

When deciding how to handle donating your damaged merchandise, consider putting a list together that includes items you plan to donate so you have a clear record should you incur an audit. It also helps to take photos of those items, so you can prove their condition matches the approximate value you calculate for your charitable tax deduction. Some organizations keep price lists you can use as a guide when figuring out how much common items are worth at a donation. You can also hire independent appraisers to determine the worth of the donated merchandise.

Though dealing with damaged merchandise is never fun, it doesn’t have to be a huge mark against your business bottom line. By making sure you have the right property insurance and a plan to recoup losses on items it doesn’t cover, you can keep your business finances in great shape and your salable inventory well stocked. For accounting and inventory purposes, 4.3 million customers use QuickBooks. Join them today to help your business thrive for free.