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David Geller

David Geller: Insta Budget




Creating financial forecasts in QuickBooks isn’t nearly as hard as most people think, writes David Geller.

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[dropcap cap=M]ost folks dislike accounting, I know I did. But in college I did very well in it, one of the few classes that I can say that about. Like making jewelry, there’s something appealingly methodical about accounting.[/dropcap]

But studying accounting and using it are two different things. Even after my mentor — an accountant/watchmaker — showed me in the late 1980s how to price repairs, I still didn’t do much in accounting except write checks.

[inset side=right]Your financials are a true picture into how you are doing.[/inset]

But once I understood what I was looking for — things like GMROI, and turn — I bathed in the subject. Your financials are a true picture into how you are doing. The P&L is like a pretty girl giving you a smile. You feel good for a moment, but before long you’re back to your old ways — owing money.


The first step to financial health is setting up the (dreaded) budget. The few folks who I have helped with a budget become better at running their business; they make more money and have greater amounts of cash to pay all of their bills.

(Some folks can’t understand how it’s possible, if their accountant showed them that they made a profit — and a nice one to boot — that they can’t pay their vendors. The reason is simple. “Accounts Payables” don’t show up on the P&L. It’s on the other sheet you ignore — “The Balance Sheet”. If you make a profit of $50,000, that’s not enough to pay off your $145,000 in accounts payables. Net profit pays the things you owe on the balance sheet.)

Take my word for it. Setting up a budget and running the report every month will “set you free”. Maybe even set you on fire.You’ll compare what you think you should be doing to what you really did.

A budget is not a system designed to make you curb your spending. It’s 100% about how to get you to where you want to go. So, where do you want to go? I boldly say you want to:

A.) Pay off your payables
B.) Pay expenses as needed
C.) Make great money
D.) ????

If the answer to D is “more time,” that comes from having more staff to take over your job and that takes a little more money.


Setting a budget requires you to begin someplace on the P&L, and it’s probably best to start with expenses. QuickBooks has a great and easy budget maker. Go to the top menu “Company” and “Create Budget”. It can pull up last year’s numbers for you (and you better have these!) and will plug them in for this year. Then you should analyze the numbers to see if expenses should change. An example:

A.) We want to increase advertising to 8% of total sales.
B.) Payroll should be “x%” of projected sales, lets plug that in.
C.) We will limit computer expenses to “x”.

QuickBooks can also, very easily, by the click of a button, increase all expenses by a designated percentage — or increase just one item by a set dollar amount. Then, you can individually change each month. An example: You might set your advertising budget at 8% of your sales. But you wouldn’t want the same number each month. So you’d enter higher numbers in December, lower ones in June. In QuickBooks, it’s easy to set up the expenses.

[h4][b]Now comes the fun part. (Actually it’s two fun parts.)[/h4][/b]

You now calculate, based on your overall gross profit margins, how much business needs to be done to have enough gross profit left over to pay the expenses. (For those of you recently joining us from the moon!, gross profit is sales minus the cost of those sales.)

Let’s say your added expenses are $100,000 and you currently have a 44% gross profit percentage. Right off the bat, we know we need $100,000 in gross profit. So divide the $100,000 by 44% and you’ll get $227,272.


That means that you’ll need to make $227,272 in sales to have the money to pay that extra $100,000 in expenses. The difference between $227,272 and the $100,000? It’s your “cost of goods” = $127,272.

But don’t enter that yet. With this formula, we have not made any net profit. We’re breaking even. And, of course, that’s not why we’re in business. So let’s strive for 8% net. Expenses can go up as business goes up (payroll, advertising, boxes, etc), so you’ll probably have to keep punching that calculator. But, in general, in this example we must remember that expenses and net profit come from sales minus cost of goods.  

So for a store needing to do $227,272 in sales, let’s push up the projection to $280,000 in sales.

If you do $280,000 in sales, your gross profit at 44% will be $123,200. If we subtract the $100,000 in expenses, that leaves $23,200 in net profit. If you divide the $23,200 by your sales of $280,000 you’ll get a net profit of 8.2%. Perfect!

[inset side=right]You can stop borrowing so much and owing vendors so much as the business will pay it’s own way. What a novel idea![/inset]

Part of the $23,200 will go to pay accounts payables and long term debt — and, not to mention, put a little money in your pocket. Some of your accounts payables will be paid by your cost of goods as you ordered in a ring in January, it’s delivered in February, and you pay the vendor from the cost of goods from that month’s sales. So you’ll have even more money actually left over. But in addition, you’ll be able to fund your own debt. You can stop borrowing so much and owing vendors so much as the business will pay it’s own way. What a novel idea!

Did you notice though that to get an 8% net profit of $23,200, you had to increase sales by over FIFTY GRAND? That’s around 23%. Hey, those are the facts of life! (But it does kind of make you think differently about giving away free repairs, doesn’t it? You can easily make $23,000 more “free money” in repairs by charging correctly, especially since repairs have a 90% closing ratio.)

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

[span class=note]This story is from the August 2004 edition of INSTORE[/span]



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David Geller

Here’s What’s Really Keeping You From Having More Money

If you think it’s low margins, you’re wrong.




I WAS READING THE Big Survey in last month’s issue of INSTORE, and one question popped out at me: “What will be your greatest priority next year?”

Thirty one percent of respondents said, “Boosting profitability.” The money-savvy ones (21 percent) said, “Clearing old inventory.” Most jewelers just don’t get that there is a big difference between making money and having money.

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Someone once taught you that margin was your most important metric. Yep, that was a good thing when everyone made two and three times key, but no more. What hampers you from having money is not low margins as much as inventory level.

Your debt typically equals one-half to three-quarters of your inventory that’s more than a year old. It shows up as accounts payable, credit card debt, lines of credit, and money owed to you (the owner) for money you’ve personally loaned the company.

Having money depends on your ability to keep that debt to a minimum. How can you do that? As a jewelry store/shop owner, there are a few options.

  1. Repairs. This is a revenue stream that requires very few resources to produce income. Your ongoing costs are findings, small stones and your jeweler’s paycheck (plus the occasional equipment upgrade).
  2. Buying scrap. This really only requires several thousand dollars of cash on hand to make a profit. Buy it on Monday, mail it on Wednesday, get a check on Saturday and you’ve made a profit and replenished your cash to do it again.
  3. Inventory sales. This is likely your biggest cash outlay, and it needs to throw off revenue monthly. All of it must throw off revenue at least once a year. All of it. You can’t wait two and three years to have money come in to pay a bill or check tomorrow.

Look at 1 and 2 above. The amount of money required is small. You don’t keep scrap very long and most people order “just enough” in findings for jobs this month, maybe a few extra items.

But inventory piles up for years and causes debt. In a jewelry store, your average inventory level should be somewhere between your cost of goods sold and gross profit amounts for a 12-month period. Any amount above that will show up as debt and poor cash flow.

Keeping inventory within these two numbers (give or take) will increase positive happy cash flow, increase your checking account balance, lower total overall debt, remove stale and outdated inventory, and may actually increase sales as you have more leverage to buy new fashionable jewelry that pleases your customers.

That would be a good thing, right?

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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.




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.


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?


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.




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.


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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