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Here’s How to Get a Loan for Your Own Cool Jewelry Store

Match the length of the loan to the life of the asset, says Laurie Owen.




AH YES, it’s the annual INSTORE Cool Stores edition, when a young jeweler’s fancy turns to longing for a cool store of his or her own. By the time you’ve reached this article, chances are you’ve already pored over pages and pages of beautiful store layouts with the same ardor you once displayed for another publication’s annual swimsuit edition.

Go for your dream, but be sure to do it wisely. If you are thinking of using your unused line of credit to pay for renovations, stop right there! Please don’t violate the No. 1 rule of borrowing, which is: match the life of the loan to the life of the assets.

A credit line is short-term debt, designed to be used for working-capital needs such as seasonal inventory, and ideally paid down to zero for at least 30 days a year.

Renovations and expansions are long-term, capital investments, for which you need a term loan, which can be paid back over a longer period of time. Chances are you’ll need every bit and more of your credit line for inventory and other unplanned expenses.

To get a term loan, you’d be wise to put together a solid plan, including financial forecasts for your new operations. And if you are thinking of buying a piece of property, or an existing building, for a new or additional location, you will actually be going from not one but three new businesses.

First, there’s a real estate project, which might be owned by the business or owned by the owners of the business and leased to the business.


Second, there’s the relocation and most likely expansion of your actual business operations.

Third, there are the future operations of the property itself.

Each one needs its own set of forecasts that will allow you to project how much money you will need to borrow and how and when you will pay it back. (Financing sources are understandably very interested in this part.)

To do the real-estate-development forecast, you’ll need to be in close contact with your architect and contractor. It will include pre-construction costs such as permit fees, surveys, architect fees, construction prep work, utilities, slabs, roof framing, electrical, etc. plus allowance for the dreaded “change orders.”

To create projections of your actual business operations, you’ll need to be in close contact with your accounting professional. You’ll want at least two sets of monthly projections: a projected income statement, or profit plan, and a cash budget. The cash budget will show your best guess as to what cash is coming in from sales and what cash is going out to pay expenses, including principal payments and interest back to the bank. Why should you have both? Because while your monthly profit plan may show an ending positive profit, your ending cash may show a negative cash situation. And cash, as they say in the financial biz, is king.

And, for each of these, you’ll likely want at least three different scenarios based on best-case to worst-case projections of sales and expenses.


Your building operations will be a profit plan on your building, showing projected revenue from rent and common-area reimbursement and expenses going out for property taxes, management fees, utilities and reserve replacement.

If all this sounds a bit overwhelming, just remember you don’t have to do it all at once and you don’t have to do it alone. Besides enlisting your accountant and builder, there’s a wonderful resource out there for you.

It’s called the Small Business Development Center, or SBDC. It’s very likely that there is an office located near you. The SBDC offers no-charge professional advice to small business owners. The counselors are extremely competent, and are often former business owners themselves. Here’s where to find a local office.

SBDC counselors have Excel worksheets and samples of projections and business plans. They can also help with market research and direct you to the right funding sources depending upon your need.

Follow your dreams, but be prepared. If the thought of doing all this “what if” has you paralyzed, just remember that the one thing we do know for sure when we make projections: You are indeed bound to be wrong in some way! However, an educated guess with professional input is your best hedge against the future unknown.



Get A Perfect Figure: $5.50

The amount of working capital, or cash flowing through a business, indicates liquidity – the ability to pay the bills when they come due. The current ratio is a common banker’s benchmark for measuring liquidity. This ratio shows that the top 25 percent (as measured by owners’ discretionary profit) have $5.50 in current assets on hand for every $1 in current liabilities, compared to $3 for all participating companies in our 2006 FIT Jewelers Survey.


How Do You Measure How Much Cash You Could Get Quickly

In our example above, in order to have the entire $5.50 available, the inventory would need to be sold. That takes time.

If you want to measure how much cash you could get quickly, use the quick ratio.

Take cash, plus accounts receivable, and divide by total current liabilities. Let’s say you had $100,000 in cash and $50,000 in accounts receivable. Divide that by total current liabilities (accounts payable, current debt and accruals) of $200,000 and you get a quick ratio of .75, or 75 cents.

Compare that to the liquidity of our top performers: $1.49. They not only make more money but they find a way to keep it as well!

This article was written by Laurie Owen, then senior vice president at Business Resource Services, and appeared in the the August 2007 edition of INSTORE.



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