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David Geller

David Geller: By The Numbers

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David Geller tells you how better planning puts more cash in your pocket.

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[h3]By The Numbers[/h3]

[dropcap cap=B]ack in the old days when you made triple key on a one-carat stone, managing by the seat of your pants did pretty well. But today, smart retailers plan next week, next month and next year. Zales, Jared and the bustling flower shop down the street run their stores by the numbers.[/dropcap]

Here’s how to run yours, with some help from QuickBooks software.

Get your profit and loss statements from your accountant — or from QuickBooks if you’ve been a user for more than a year. You’ll need to know:

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• Percent of sales from selling inventory
• Percent of sales from repairs
• Percent of sales from appraisals
• Gross profit margin percentage from selling inventory
• Gross profit from the whole store

Armed with this information, get into your budget working backwards.  

[dropcap cap=1.] Figure expenses per month first; this will tell you overhead.[/dropcap]

[dropcap cap=2.] Figure the net profit you want to attain. An average jewelry store gets about a 6 percent net profit (bottom line), so use that number.[/dropcap]

[dropcap cap=3.] Add 16 percent to your net expenses, which will give you the amount of gross profit from total sales you need to pay for expenses and still give you a net profit of 6 percent. (Trust me on this 16 percent thing. It works.)[/dropcap]

[dropcap cap=4.] After knowing how much gross profit you need, figure how much you will have to do in total sales to make that gross profit using the gross profit percentage that you’ve made in the past.[/dropcap]

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[dropcap cap=5.] Split the sales up by Inventory Sales, Repair Sales, Custom Design, and Appraisal Sales based upon the percentages you already know from above.[/dropcap]

[dropcap cap=6.] Knowing your gross profit percentage and subtracting from 100 gives you the cost of goods you can expect, because Sales minus Cost of Goods leaves you with Gross Profit.[/dropcap]

[dropcap cap=7.] After plugging in these numbers, you should have a Profit and Loss Budget that will help you run your store better throughout the year.[/dropcap]

[dropcap cap=8.] Take each month’s sales goal and divide them up among the sales staff and owner. If you all do your fair share, you’ll make your sales goals.[/dropcap]

You can do this on a spreadsheet or even with a pad and pen, but it’s not nearly as easy as using QuickBooks, particularly once you’ve been using it a year. Why? Because QuickBooks will enter all expenses for you for the coming year! Of course, it will be last year’s expenses, but you can just change them (some will stay the same).

In QuickBooks, go to the very top menu bar and click on Company, then on Planning & Budgeting and Set Up Budgets.

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You’ll get a box asking to Start from Scratch (for those new to Quickbooks) or Create Budget From Previous Year’s Data (for those with a year’s worth of data).  

Get rid of Income and Cost of Goods in the new budget QuickBooks made for you by deleting the number in January and then clicking on Copy Across. Cool, eh? That’s also how you’ll input numbers like rent.  

What’s in front of you is last year’s expenses. Look at expenses and type in for each month a number that seems realistic. In QuickBooks, if you need to increase an expense by either a dollar amount or percentage, just click in the first month to adjust and click on Adjust Row Amounts to change the whole year.  

The sad news is that QuickBooks doesn’t add up the budget for you at the bottom. Keep the budget open and go up to Reports, then Budgets & Forecasts, and then choose Budget Overview. Then follow through clicking Next and Finish at the end. If you saved your budget, then it will add up on the overview. The overview, like the budget itself, has no income or cost of goods, just expenses. So if you scroll to the bottom, expenses will be added up for you. Net profit will be a negative as you have no income — yet!  

Next month, I’ll discuss how to establish sales goals for yourself and your employees based on how much net profit you want to make. You’ll be in for a surprise: You may just find that you have to raise your prices.

[componentheading]BREAKOUT[/componentheading]

[contentheading]Coming Up Next…[/contentheading]

Your budget says you’re losing money. Maybe you’ll have to:
• Cut expenses.
• Raise markups, add a few bucks to every loose-stone sale, buy diamonds off the street, find lower priced vendors, raise shop prices.
• Focus on certain months. You may have to light a fire under your staff in April, July and September.

David Geller is an author and consultant to jewelry-store owners on store management and profitability. E-mail him at [email protected].

[span class=note]This story is from the January 2007 edition of INSTORE[/span]

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