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Laurie Owen: Squeezed Out



When it comes to the balance sheet, warns Laurie Owen, doing nothing is usually the worst possible decision.

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[h3]Squeezed Out[/h3]

[dropcap cap=E]veryone knows knows the value of a sponge: It absorbs water. Your company’s balance sheet is just like a sponge — except it soaks up cash instead of water. As a sponge nears its capacity, it becomes increasingly less absorbent. The same occurs with your balance sheet, and the phenomenon has two basic causes.[/dropcap]

[inset side=right]Furthermore, growth in sales is often accompanied by a decrease in the efficiency of operation.[/inset]Increasing sales — or growth — create a need for additional money to finance an increased level of assets. The main source of this money for many companies is creditors — in other words, debt. Risk, in the form of higher debt, rises accordingly, and increasing interest expense may even put downward pressure on profits.

Furthermore, growth in sales is often accompanied by a decrease in the efficiency of operation. This inefficiency surfaces on the balance sheet, as proportionally more assets are required to support new sales levels. In other words, the rate of asset growth increases faster than sales; you make the same percent of profit — but you make it less efficiently.


So, what do you do? From my perspective, the clear message in a growth situation is straightforward. Manage better. I’ve listed below a few of the ways that can be done:

• Manage current assets (inventory, A/R) more efficiently
• Restructure debt (long-term, not short term)
• Make more profit
• Sell existing unproductive assets
• Curtail expansion
• Lease fixed assets
• Implement sale-leaseback of existing fixed assets
• Accept more risk (debt)
• Don’t grow (use pricing to limit growth)
• Get new equity — a passive investor or active partner

You need to arrive at the particular combination of components that will work for you. Remember, when it comes to the balance sheet, doing nothing is usually the worst possible decision.

By earning the same level of profits more efficiently, sufficient cash is squeezed out of the balance sheet to reduce significantly the borrowing requirements.

Consequently, this concept that we’ve labeled the Financial Gap can be applied two ways. First, it’s effective as a tool to estimate borrowing needs in a growth situation — at an existing level of asset management efficiency. More important, it’s an invaluable management-planning tool for developing goals and standards of performance for efficient management. Keep in mind there are three fundamental parameters in evaluating the growth capabilities of expanding companies:

1. How efficient the company is now
2. The financial requirements of a particular company — what new assets will be needed
3. The owner’s abilities as an asset manager


Growth is reflected on the profit and loss statement as increases in sales and (hopefully) profits. The cost of growth is generally reflected on the balance sheet in the form of increased debt to offset decreased efficiency.

These are controllable issues. If you choose not to control them, then your banker may choose to help. This help will come in the form of restrictive covenants regarding asset management — that is, turnover requirements for inventory and/or accounts receivable. (Listen for the comment: “I’m doing this for your own good!”)

What your banker is really saying is that borrowing implies a partnership; you supply efficient management and your banker will supply sufficient funds. Banks are in business to finance efficient growth — not to subsidize your inefficiency.

The sponge analogy? Well, efficiency translates to squeezing your balance sheet to free up the funds you need to grow; otherwise, you’ll find it squeezing you.

[componentheading]LUCKY NUMBERS[/componentheading]



What is it? Debt-to-worth. The debt-to-worth ratio for the top 25 percent in our 2005 FIT Jewelers Study showed that for every dollar owners have invested in the company, the creditors provided 85 cents. The median point for all participating companies shows that for every dollar owners have invested, the creditors invested $1.49. The Top 25 percent are less risky as measured by the debt-to-worth ratio. It’s calculated by dividing total debt by total equity.

Strategy: Debt-to-worth is a favorite ratio for bankers, as it measures the potential risk of a company. (Rumor has it that some bankers can read your statements upside down from across the table and compute this number in their heads.) Unlike most other ratios, lower is better for this one.

[componentheading]MONEY MATH[/componentheading]

[contentheading]Is Your Debt-To-Worth Too High For Your Banker’s Liking?[/contentheading]

Here’s a formula for making the numbers work in your favor.

Some bankers will let you reclassify any money you have loaned to your company as equity. This is provided that you agree to be last in line when the loan needs to be repaid. Let’s say a company’s net worth is $1 million and its total liabilities are $3 million, putting its debt-to-worth ratio at 3 to 1. The banker says “no-go”; she can’t loan to companies with a ratio at or above 3. But if the liabilities include a $250,000 loan made to the company by the owner, you can reclassify it as equity. The company’s debt-to-worth drops to 2.2 ($2,750,000 ÷ $1,250,000). To improve this ratio,  in the longer term, generate more profit and pay down debt.

Laurie Owen is senior vice president at Business Resource Services. Contact her at

[span class=note]This story is from the January 2007 edition of INSTORE[/span]



Wilkerson Testimonials

To Generate Funds for a Jeweler’s Move and Remodel, Wilkerson More Than Delivered

Even successful jewelers need a little extra cash to fund expansion plans—especially when there’s inventory on hand that’s ripe for liquidation. For Beaumont, Texas-based jeweler Michael Price, co-owner of Mathews Jewelers, it was the perfect time to call Wilkerson. Price talked to other jewelers as well as vendors for advice during the selection process and decided to go with Wilkerson. And he wasn’t disappointed. When it comes to paying for the move and expansion, Price says the road ahead is clear. “When we close on the next two stores, there’s no worries about finances.”

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Shane Decker

The Difference Between Closes and Statements, 7 Lead-In Lines and More Sales Advice

Here’s how to make closing sales easier, says Shane Decker.




HAVE YOU EVER made something that should have been easy difficult? Maybe you overthought it, or you were afraid to try. Or you were worried what someone else would think.

Salespeople tell me all the time, “I tried that and it didn’t work.” But my observation is that people often try something once, fail at it, and then give up. They’ve proven to themselves that something new does not work.

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You have to want to make the effort and put in the time and practice to build new habits, especially when it comes to what I call “needle movers.”

Needle movers are actions that put money in the cash register immediately. The three big needle movers are closing, adding on and wowing clients. These should be easy, but we make them hard because of fear, lack of experience, or lack of selling skills.

It’s time to get over that fear of change. Have your team write 10 new closes, and make sure they’re not statements. For example:

Statement: “That is a beautiful diamond.”

Close: “She’s going to love wearing that beautiful diamond, and you’re gonna be glad you gave it to her.”

Then have them write 10 lead-in lines for add-on sales. Do not say, “Can I,” “May I” or “Would you like?” Clients can say no to all of these. Examples of lead-in lines to create add-on sales are:

“We have what matches.”

“This is part of a set.”

“She won’t wear this without the matching.”

“Tell me something else she’s always wanted but you haven’t purchased yet.”

Then, have your sales team write 10 lead-in lines to create a sale from scratch. This is what you say to a client when they’re waiting for a battery or repair. Examples include:

“Guess what’s in the vault?”

“Gotta show you my favorite.”

“Guess what just came in.”

These must be said with passion and enthusiasm. They allow you to wow the client and change their experience while they wait. Remember: You have to do something to make something happen. Clients buy on impulse all the time.

Practice with your team and make these phrases come naturally. Start all of these presentations with a lead-in line, and the rest will happen by itself. Clients do not get mad when you show them something gorgeous.

But you have to hold yourself accountable, and there has to be consistency. For some reason, it’s easier to fall back on old bad habits than keep good ones. Winging it doesn’t work. Practice with each other over and over until the simple truly is simple.

Creating is better than waiting. Get comfortable with your sales skills. Be the sales associate your client wants you to be.

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What You Can Learn About Jewelry Retailing From Airbnb

Rather than creating an average experience, consider what an 11-star experience would look like.




AIRBNB IS A hotel alternative tech startup that has been on a meteoric rise over the past decade. That’s great for them, but what does it have to do with your jewelry store? A lot, actually.

Let’s take a close look at Airbnb’s creative process, break it down, and translate it so it can work for you in your store.

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Focus on delighting your customers. Think in terms of providing an experience rather than just selling jewelry. You might consider Airbnb as simply a hotel alternative, but they are successful because they’re so focused on the experience they provide. Here’s what Airbnb advises: “Hand serve your customers. Win them over, one by one. And don’t stop until you know exactly what they want.”

To create the experience their customers wanted, they asked them! They got to know their users. They asked them with openness and genuine curiosity what they wanted so that they could hit the mark in what they offered. People will share their opinions with you — all you have to do is ask, and then act on what you hear.

Shoot for 11 stars on a 5-star scale … then rein it in. Airbnb’s design process encourages you to let your imagination run wild. Don’t ask, “How do I make this better?” Instead, ask how you might completely blow someone away. Dream really big, and then think about what’s feasible within that dream. It’s much easier to be creative if you take away all the limits.

In Airbnb’s world, a 5-star check-in experience would be, “You knock on the door, they open the door, they let you in.” Getting creative, an 11-star experience would be “I’d get off the plane and it would be like The Beatles arriving: There’d be 5,000 high school kids cheering my name with cars welcoming me to the country. I’d get to the front yard of your house and there’d be a press conference for me.” With 11 stars, Elon Musk would meet you at the airport and say, “You’re going to space.”

Translating that to jewelry retailing, a five-star check in would be simply greeting the customer. An 11-star check in would be showing up at your customer’s house in a limo or helicopter, champagne and treats for the ride over, the store is closed to the public, and every piece they’re shown fits their taste and budget exactly.

You’re probably not going to pick your customers up in a helicopter, but experiment and aim for the sweet spot within your grand ideas. Pull some pieces aside if you know a customer is coming in. Auction off a special after-hours shopping party with drinks and light bites for the winner and their friends. Create a unique and memorable experience, and your customers will connect with you and want to come back.

Iterate like a great tech company. Experiment and see what kind of response you’re getting. Some ideas will work, and others won’t, and that’s totally okay — you need to find the right combination for your business. Set goals, then pay close attention to what’s working and what’s not. You won’t know if you’re succeeding unless you measure the results of your efforts. Adjust what you’re doing and see how things change. This all boils down to a process of continuous improvement and iteration.

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Here Are Three Ways to Beat Online Retailers

These are services that they simply can’t offer … but you can.




HOW DO YOU fight online competition? By focusing on the things that they simply can’t do, namely service.

Here are three areas where you can use the service aspect of your business to your advantage and increase your service revenue stream.

Watch Batteries and Watchbands

I’m constantly amazed at how many jewelers either don’t sell watch batteries and watchbands or don’t take full advantage of the opportunity. I don’t know of another business that you can walk into and receive immediate service to fix a problem without an appointment. Yet, we jewelers do it all the time. When your customer has a problem that you fix on the spot, you’re adding value to the transaction. Start your standard watch batteries at $15 to $25 installed with a one-year warranty and never look back.

In-Store Repairs and Adjustments

So many people purchase watches online that need to be sized or adjusted. Some of them are so poorly made that they’re ridiculously hard to adjust or too large to size normally. There’s nothing wrong with charging $20 or $25 to fit a watchband to your customer’s wrist. They didn’t purchase it from you, and you’re certainly under no obligation to help them, but you’ve chosen to provide great customer service, so make sure you’re well compensated for your time and effort. This also applies to in-store repairs like closing jump rings, installing lobster claws, spring rings, etc. These are services that your customers can’t do themselves. Make sure you charge for your time, even if it’s only $5 or $10. It all adds up, and no one should work for free, especially when it wasn’t purchased from your store. We use the money generated from these adjustments to throw a great employee holiday party at the end of the year.

Custom Design Appointments

Most customers have no idea what goes into the preparation of a custom design project, whether it’s counter sketching, wax carving or actually doing a CAD. They come in with an idea that they want you to bring to life, and of course they want to know how much it will cost. By charging at least $100 for an initial consultation, which can be applied to the finished piece, you will immediately separate out those people that are simply information seekers from those customers who are serious and ready to start the process. If you’re not charging for that initial consultation, you’ll be taken advantage of time after time, as they will use your ideas and go somewhere else if they’re not satisfied with the price. By committing to pay you something up front, they are invested in the process and have an incentive to stay with you.

I’ve only listed three types of in-store services that will generate more income for your store, but there are many more. It’s important to keep in mind that your customer can’t go to Amazon or any online retailers to have these services done; they’re either not offered at all or are too prohibitively expensive and time-consuming to ship back and forth. They can be done offline by you, day after day, for a substantial profit.

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