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David Geller

David Geller: Just Pay

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Are you still doing you own payroll? Outsourcing it could save you time and (yes!) money, says David Geller.

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[h3]Just Pay[/h3]

[dropcap cap=M]any jewelers think that any job they can do themselves saves them money versus hiring that job out.[/dropcap]

Well, I’d like those jewelers to think about their attitudes, especially when it comes to payroll. There are several ways you can go about paying your employees (and calculating those dreaded W-2’s come January). I’ll go through the options quickly, and let you make a decision as to what provides the best return on your time, the greatest level of accuracy, the most useful records, and the least danger for your business. In short, which provides the best overall value for you. Here goes:

[h4][b]Option #1:[/b][/h4] Manually figure payroll from the booklet the government sends you.

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Analysis: Too time-consuming. Expect to spend at least twice as much time figuring payroll as you would with a $300 off-the-shelf software program. Figuring taxes, deduction and hand-writing checks is laborious. Plus, if you make a mistake there can be serious penalties. Then you have to type up your own W-2’s in January. Doing payroll this way is so 1980’s!

[h4][b]Option #2:[/b][/h4] Use a program built into your accounting system, i.e. QuickBooks or Peachtree.

Analysis: Both of these programs can calculate payroll monies. Simply click on “Pay Employees” type in the number of total hours worked into each employee’s line. The program distinguishes between regular hours and overtime, will make deductions and give a monthly report of how much to pay to each branch of the government to whom you owe money. It will even print the forms for you. If you have deductions for insurance, you’ll have to figure when to pay those on your own, but the program will deduct it for you. QuickBooks offer three types of payroll — standard, enhanced, and assisted — which offer various levels of information support. These services start at $17, $25, and $59 a month respectively, and increase depending upon the number of employees in your company.

[h4][b]Option #3:[/b][/h4]Have your CPA or accounting firm calculate payroll after you supply them with a list of the work hours of your employees.

Analysis: Many folks just call or fax their accountant and let them do all of the work. Fine. Sometimes this can be expensive and sometimes it’s a bargain. I know one small store whose accountant does all payroll as well as monthly financial statements for a mere $200. But if you use this option, you still have to enter the checks manually into your checkbook.

[h4][b]Option #4:[/b][/h4]Using an outside payroll service like ADP or PayChex.

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Analysis: This is the way I would suggest for many companies — be sure to let the service print the checks on their bank account (which they’ll then FedEx to you). After that, they debit your checking account for all monies including all taxes and send the taxes each week along their way. They send in your 941’s (you never sign another form … ever!) and, in January, deliver your W-2’s. All you have to do is enter the checks into QuickBooks or your checkbooks.

Better yet, by letting them print the checks on their account, you won’t have to enter every check. These companies will give you a record binder that includes the entire history of each employee and check. If you use one of these services, I’d suggest entering one check into your check book for the whole week’s payroll and divide it by department.

Another advantage of using one of these payroll services is that it allows you to more easily offer benefit packages. Even a one-person corporation can have a 401K plan and sock away over $30,000 a year and these companies have funds to put your money into. In addition, they have “cafeteria plans” where you can put away tax free dollars for childcare, eyeglasses and other things not covered by insurance. I’m told that ADP and PayChex even offer insurance through another section of their company.

You can enter payroll by phone, fax, or over the Internet. Employees can even manage their own benefit packages over the Internet.

[h4][b]Option #5:[/b][/h4]Using a Payroll Leasing Service — i.e. Administaff

Analysis: Also called “employee leasing”, this is what I used in my store. Think of it as PayChex or ADP … on steroids. Basically, what such services do is turn all of your employees into “temp employees.” Your entire staff is on their company payroll, and their company hires you, the owner, for $1 a year to manage them. After you submit payroll details, their company will pay employees on their checking account. Again, this means it’s easy to use. But also, because everyone on your staff technically works for the leasing company, you can also benefit from great deals on health insurance — since your employees are all now part of a 1,000-strong workforce.

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In my situation, when I moved my company over to an employee-leasing system, we saved more than $1,000 a month on our health insurance premiums! Yes, we had to pay for the service — but the net result was a savings. (And that’s not to mention the time-savings and worries about tax liability being taken off our shoulders. They can even help you with Human Resource materials and handbooks.)

The leader in this field is Administaff, but there are others. Costs vary on all of these, and some services require at least five employees. In my current business, as a consulting company with just two employees, I use PayChex and have a 401K plan and bought my insurance separately through Blue Cross/ Blue Shield.

By now, it should be clear that payroll is one area where you should definitely avoid the temptation to do it yourself. I guarantee you’ll make no money doing your own payroll. Outsource it, all of it, so you can concentrate on selling and marketing.

Start the new year off right and get rid of the drudgery and concentrate on growing your business.

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 February 2006 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.

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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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