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David Geller

David Geller: Computer Class

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David Geller fires up QuickBooks, and shows you the first steps towards organizing your store’s accounts.

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[h3]Computer Class[/h3]

[dropcap cap=I]t’s time to get down to the nitty-gritty. Last month, we introduced the theory of having separate income and cost of goods accounts in QuickBooks, and explained why this was the best way of keeping track of how well your store was doing. This month, we’re going to help you actually create those accounts.[/dropcap]

Quickbooks

To refresh your memories, for income, your three accounts were:
• Showcase Sales
• Special Order & Memo Sales
• Shop Sales (Repairs)

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And for cost of goods, your complementary accounts were:
• Showcase Sales Cost of Goods
• Special Order/Memo Cost of Goods
• Shop Cost of Goods

So let’s make these now. Go into QuickBooks and go to the Chart of Accounts. The easiest way to get this is by typing “Control +A.” At the bottom left of that window is a small box titled “Account.” Click that and choose “new.”(See First Figure)

At the next window, you’ll see a menu called “Type” with the category “Bank” currently selected. Pull down the menu and change the selected category from “Bank” to “Income”. Then, in the “Name” box type “Showcase Sales”. Clicking on the “next” button saves the account you just created. Now that you’ve saved it, start with the next account. (See Second Figure)

Notice that the next window that comes up will automatically come up as an Income Account. Name the next account “Special Order/Memo Sales”. Click “next”, and do the same process for Shop Sales — or you can call it “Repair Sales”.

QuickbooksNow it’s time to create your “Cost of Sales” accounts. After clicking “next”, change the account type from “Income” to “Cost of Goods Sold”. Then, create a new category for “Showcase Cost of Goods”, click next, and create another for “Special Order & Memo COG”. Click next.
Now, it’s time to do our “Shop Cost of Goods”. In this case, we will continue to add sub-accounts under our Shop Costs. After you have created the “Shop Cost of Goods” and clicked “next”, do the following:

Type the name of the first cost of the shop, which is Jewelers Wages. Then right below the name is a small box titled “Subaccount”. Click the box and then the drop down arrow next to it will reveal the “Shop Cost of Goods” category. Choose it. Click “next” and then add the following sub-accounts one by one:
• Jewelers Wages
• Jewelers Matching Taxes
• Jewelers Benefits
• Findings/Gold/Mounting
• Small Shop Stones
• Gas & Oxygen
• Shop Tools

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What you have just entered is sub-accounts that cover all the different costs of having a shop. And in the future, instead of choosing “Payroll Expenses” when you have to account for the paycheck of your jeweler, you choose “Shop Cost of Goods Sold: Jeweler’s Wages”

Then when you put all your shop sales in the income area, and all of your shop costs in the costs of goods area, you’ll finally know whether your shop is profitable or not.

QuickbooksOnce finished, your Chart of Accounts should look something like this (See Third Figure).

Next month, we’ll start to show you how to enter your sales into these accounts by using our Point-of-Sale program data and a simple journal entry. (If you don’t own a Point of Sale program, my “QuickBooks for Jewelers” program shows you how to use QuickBooks without a jewelry-specific point-of-sale program, but the simple fact is you’ll run your business better with one than without one. ) QuickBooks on its own is a poor inventory management program. Remember: we aren’t using QuickBooks for inventory management here, we’re using it for money management.

In the meantime, you can start using the “Shop Cost of Goods” we just created. But don’t start using the other income and cost of goods categories yet. Because we’ll have more to teach you on these next month.

Here’s a teaser for you. When you bring inventory into your jewelry store the bill or check is not for “Cost of Goods”. It’s an “Inventory Asset”.

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Jewelry is an asset and stays that way until the day it sells. Then, and only then, does it magically transform itself into “Cost of Goods”.  
More next month.

David Geller is an author and consultant to jewelry-store owners on store management and profitability. E-mail him at dgeller@bellsouth.net.

[span class=note]This story is from the March 2005 edition of INSTORE[/span]

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David Geller

Can You Make Money at 12 Percent Margin? Yes, But Here’s What It Takes

As one factor decreases, another must increase.

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CAN YOU MAKE a living on a profit margin of just 12 percent? Did the word no come to mind? You’re wrong.

For coin or bullion dealers, 8-12 percent gross profit margin is the norm, and they make a lot of money with little debt.

The “magic triangle” includes profit margin, inventory turn and inventory level. The combination of all three tells your future in a store, how much money will be left over to pay all bills and have money in the bank.

Let’s take a simple store math example for a year using keystone. A typical jewelry store would have a net profit of 5 percent. Here’s how a P&L would look:

Total Product Sales: $500,000
Cost of Goods: -$250,000
Gross Profit: $250,000
Expenses (45%): -$225,000
Net Profit (5%): $25,000

Are you making money? Absolutely. Do you have any money left over after paying expenses? Depends.

Imagine if last year, you sold everything at Christmas, not a stitch of inventory left. January 2nd, you fly to New York with three suitcases and buy the $250,000 of inventory that the cost of sales above pays for. You’ll have no debt. If something sells within six months, you have the money to reorder the replacement for the case, thus always having a stocked showcase.

Divide $250,000 in cost of goods by inventory of $250,000 and you get one turn a year.

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Now assume the same figures above, but instead of three suitcases costing $250,000, you bring five suitcases and bring back $600,000 of inventory for the store. Same sales and profit numbers as before. Did you make a profit, make money? Yessiree Bob! Do you have money? No! You bought $100,000 more inventory than the sales you took in. So how do you pay for it?

  • Owe vendors way past the due date
  • Put it on credit cards
  • Go to bank and take out a line of credit
  • Personally skip paychecks
  • Take money from your personal checking accounts

In this scenario, your inventory is $350,000 higher than the cost of goods sold. Divide cost of goods by inventory level, and it shows you have a 0.41 turn. A turn of 0.41 means this store has more inventory than needed for two years.

So, what’s the secret to having money?

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The long and short of it is, if you’ll keep your inventory levels approximately equal to the gross profit dollars you’ll make over a year, you’ll both make money and have money.

The lower the profit margin, keep inventory lower, or if you must have a higher inventory level at lower margins, then turn it faster. Instead of taking 12 months to sell it, sell within nine.

It takes all three for The Magic Triangle to work magic in your store!

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David Geller

What You Can Learn About Turn from Clothing and Furniture Stores

Hint: Turn more, earn more.

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THERE ARE REALLY only three important numbers in a retail store: gross profit dollars, inventory on hand, and inventory turn. So who’s better at managing money among these three retailers?

Store                         Gross Profit %
Jewelry                      42.6%
Furniture                  45.0%
Clothing                    46.5%

Darn close, aren’t they? The grass isn’t so green on the other side after all. Or is it?

Let’s look at inventory turn, which means how many times a year an item sells. (These numbers are from stores doing “pretty well.”)

Store                            Turn            Days in the Store
Jewelry                   1.4                       260
Furniture               3.5                       104
Clothing                 4.3                       84

A clothing store won’t keep a shirt/suit/jacket/blouse in the store more than three to four months. They will heavily discount it at that point to get it out the door; they don’t just “squash” merchandise closer together to show more like jewelers do.

Furniture stores work the same way. They have a natural problem: available floor space. The biggest reason for high turn in a furniture store was told to me by a furniture store owner: “Where am I going to store an extra 100 mattresses?”

Clothing stores get rid of their merchandise every quarter. Furniture stores get rid of their inventory every four months, and a good jeweler turns their merchandise a little over once a year. But most jewelers I meet have had their total merchandise for two-and-a-half to four years! This causes terrible cash flow and piles of debt.

If you buy jewelry in January, it should sell at least once by Christmas; that would be a turn of 1.0. If it stays until after Christmas, discount it or give a spiff to the sales staff to unload it, or even return it to your vendor and exchange it.

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If it is still there in 18 months, scrap it. That’s what clothing and furniture stores do.

Let me show you the money-making power of turn. All three stores are going to buy an item for $200. For a jeweler, this might be earrings; for a clothing store, a nice jacket; and for a furniture store, it might be a chair. In the table below you can see the cost, profit margin in dollars, and what that brings in for total product dollars in a year.

Keeping an item long-term is a detriment. Even if someone buys it three years from now, you should have had that $207 in profit for each of the three years, totaling $621 brought into the store (not the measly $163.35 you would make by holding it three years).

When it’s over a year old, most things need to be disposed of and replaced. Maybe your customers just aren’t buying what you have in stock. Change that!

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David Geller

Here Are a Few Tips You Haven’t Seen to Make the Most of Your Bridal Custom Designs

They’re simple yet brilliant.

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IT’S 2019, AND it’s not your daddy’s jewelry store anymore. No more high margins on diamonds. Where’s the money now? The mounting.

Keystone is the goal, and many get it on the mounting, but comparison shopping can make it difficult. That said, the really big problem with selling from the showcase is the amount of inventory you must carry.

Video: Things to Remember When Dealing with ‘Gonna Buy’ Jewelry Customers
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On the other hand, custom designing an engagement ring has many advantages:

  • Higher profit margins
  • You pay for the item after you’ve collected money from the customer.
  • The customer feels like they are directing the process rather than being “sold.”
  • If you share the process of designing their ring with the customer, they will likely share with their friends and family. It’ll be on social media, texts and emails.
  • You can adjust which components go into the ring to more fit their budget.
  • Selling from the showcase has a closing ratio of 30 percent in most stores, but custom design has a closing ratio of 70-80 percent.

The downside? Someone must know how to design the ring, how it comes together and pricing. Training is essential, or having someone specific to sell the ring and lead the customer through the process. Figuring out how to price the item requires particular skills.

Here are some additional tips to make the most of your custom design process:

  • While designing the ring, if you use CAD/CAM, take a snapshot of the model on the screen and send it to the customer, saying something like, “Well, Jim has gotten started on your beautiful design.” If you hand-carve the wax or mill it, take a picture and send by text or email. Same goes for the casting process and another of the jeweler finishing up the ring.
  • When appropriate, send out a handwritten thank-you note.
  • Go to Office Depot and buy a pack of 100 sheets of do-it-yourself business cards. Make yourself a master blank company business card with no logo, just everything else about your store. Take a good picture of their new ring and paste it on the card, then print a sheet of 10 and have it in the envelope when you deliver the ring.

After they “ooh and aah” over the ring, tell them, “I’m glad you love it. You know, we have more customers come in from referrals than anything else and would love for you to refer family and friends. Here are some of our cards.”

Then plop them down on the showcase face up.

They will be so excited that they will not only place one on their refrigerator door, they’ll give them out to friends and show everyone how their ring is on “my jeweler’s business card.”

Isn’t this a fun business?

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