MOST PEOPLE GO into business because they excel in either making or selling something. The numbers side is typically not their strongest skill, and jewelers are no exception.
That’s why it’s not surprising that many jewelers find the hiring, training and supervision of accounting staff one of their greatest challenges. Who likes to be the boss of someone when the job function is out of your comfort zone? Plus, it’s a competitive market. You just get someone you trust hired and trained, and then he leaves for greener pastures, often with no time to train a new person.
I see many large jewelers who are way understaffed in the accounting area. While you can often get by with a part-time bookkeeper during your startup phase, many jewelers run into real problems when they start to grow and find their bookkeeper is out of his league when it comes to doing projections and preparing a loan package.
There is also a lot of confusion out there about the roles of accounting staff and what’s included in the job description.
Here’s a simple primer:
- A bookkeeper should be able to keep accurate, if basic financial records, detailed enough to help an outside accounting firm prepare taxes. You’ll want to find a full-charge bookkeeper to get the highest level of expertise available at this level. The Robert Half International/2007 Salary Survey Guide tells you to expect to pay $30,000-$43,000 for a full-time, full-charge bookkeeper.
- An accountant should be able to do all of the above, plus provide advice on how to improve profits, cash flow and recommend the optimum ownership structure. Expect to pay between $36,000-$66,000 depending on years of experience and level of management expected.
A good controller should be able to do the above, plus go beyond the day-to-day numbers. A good controller should be able to choose and maintain the right accounting software, generate timely weekly and monthly financial reports and keep cash flow on track, plus help prepare cash-flow forecasts and loan packages. Expect to pay in the range of $60,000-$80,000 per year.
- A chief financial officer, or CFO, can prepare a comprehensive business plan and deal with professional investors to create ongoing, complex financing deals. Expect to pay $88,000-$116,000 per year.
- What to do if there is a disconnect between your needs and your budget? There are several options. One is to outsource. Many companies I know outsource their bookkeeping function with great results. You get rid of the hiring and training hassles, plus the best outsource firms will use a team approach to each client’s situation, often bringing in a CPA to work with your assigned bookkeeper, enabling you to get much more for your dollar than you could on your own.
- Or consider the part-time or temporary situation. There are also firms that specialize in placing temporary CFOs and controllers in companies. Ask your advisers and local industry associations to recommend accounting organizations with good track records.
- Use your outside CPA more often than just for year-end tax advice. We see many costly situations that could have been avoided if a CPA had been brought in to work with the in-house bookkeeper on a regular basis during the year.
- A couple more key points:
- Whoever you hire (or outsource to), be sure it is someone with whom you feel comfortable communicating. It doesn’t matter how brilliant someone is if you are too intimidated to talk with him.
- Be sure they are team players. They must have the ability to work with the rest of your staff.
- Don’t outsource your own responsibility in this area. You need to know what types of reports you should be getting and how to read and interpret them. If you go to a bank for financing, remember it’s you who will be signing the guarantee, not your accountant. Know your numbers and be prepared to answer detailed questions.
- Lucky Numbers
- Get A Perfect Figure: 2.8%
That’s the change in the average amount of owner’s salary as a percentage of sales the Top 25% paid themselves from 2004 to 2006, according to the FIT Jewelers 2006 Benchmarking Study. While owners’ salaries decreased by almost 3 percent of sales over the last couple of years, their total potential take-home pay, as measured by owner’s discretionary profit, or ODP, increased by almost 2 percent of sales (ODP is owner’s salary plus net profit before tax, divided by total sales.) While we don’t know if the Top 25% made a conscious decision to pay themselves less in salary, the result was that more ended up on the bottom line in profits.
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Money Math
How Do You Compute Your Owner’s Discretionary Profit?
Take your total owner’s compensation, plus benefits, add net profit before tax and divide by total sales.
Owner’s Salary + Benefits + Net Profit Before Tax diviced by Total Sales = ODP
Our top performers took home 22 percent in ODP in 2006.
Top performers tend to target an ODP at the beginning of the year and track it monthly.
This story is from the October 2007 edition of INSTORE.
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