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David Brown

3 Ways To Inject Cash Into Your Jewelry Business

And why discounting may actually lead to more problems in certain scenarios.

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MANAGING CASH FLOW is the lifeblood of any business … even more so now that recent events have dictated the ability to receive cash coming into your business. Now more than ever, you need to be able to balance the difference between inwards and outwards cash.

Let’s start by defining cash. This is not a reference to pieces of paper with famous deceased people on them. We are talking about your bank balance — the ballast that can help keep your business afloat. Whether it’s via hard currency or through online payment, your bank balance is the measure of days you can continue to trade if your sales are lower than your costs.

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The priority right now is to have your cash buffer as large as possible. You can do this in two ways: by increasing your sales or by injecting money via private funds or through loans. Sales will provide a buffer if you are converting inventory you don’t need into cash or are doing it with a profit margin. But getting rid of old product at cost to then find yourself replacing it at the same price (or worse, a higher price) doesn’t solve this issue. You must either sell profitably or sell product you don’t need to replace.

If you have a surplus of inventory, then consider this option to building your cash reserve. You can further help the amount of cash you retain from sales by addressing your costs. Your business will have fixed costs that exist whether you trade or not (e.g., fixed rent or wages where your staff aren’t on a commission) and variable costs (e.g., consumables or transaction fees) that move in proportion with how much you sell. The variable costs will tend to take care of themselves, but your fixed costs are the ones you need to target so you can keep more dollars from each sale in your bank.

If converting inventory to cash is not a possibility, then consider option two: an injection of funds.

Money has seldom been as cheaply available as it is now. Borrowing for your business is always about the margin you can make on those funds and the risk associated with the borrowings. This is the same criteria that a lender will consider: Do they have an ability to repay (is the profit margin on borrowing good enough to cover the borrowing costs?) and what chance is there that they can’t repay? Despite the affordability of money right now and the encouragement being given to banks to provide small business funding, you need a good business plan to borrow, both for the bank’s peace of mind and for yours. It’s never a good borrowing scenario if you end up going backwards — no matter how cheaply the money was available.

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Negotiating affordable loans may be an important step to keeping things going over the next 12 months, but do your math and recognize how you will finance this going forward.

David Brown is president of the Edge Retail Academy, a force in jewelry industry business consulting, sell-through data and vendor solutions. David and his team are dedicated to providing business owners with information and strategies to improve sales and profits. Reach him at [email protected]

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