Connect with us

David Brown

What Does Your Debt-to-Equity Ratio Mean to Your Business?

Achieving the correct balance will keep your business healthy and ready for growth.




ACHIEVING THE CORRECT balance will keep your business healthy and ready for growth.

No business can survive well without adequate funding to sustain growth and maintain working capital during times of the year when cashflow is tight. Even the most profitable jewelry store is very dependent on December trading for most of the annual profit and needs additional financial support during the remaining eleven months to keep the business running smoothly.

When it comes to securing financing, most businesses are faced with two choices: debt provided from an outside source, or equity — funds contributed by the owner (or additional owners if it is decided to bring someone else on board).

The ratio of debt to equity is one of the most important measures of a business’s financial health. Too much debt can create pressure on the business to service the cost of carrying it. Equally, too little debt for a successful business may mean it’s missing the opportunity to maximize returns where the interest rate is lower than the return on investment that the funds can generate.

This balancing act needs to be revisited from time to time as the ratio between the two does not stay steady by itself. Retaining profits in the business can grow equity, which provides funds for growth. However, this may have its tax disadvantages if you then use debt to fund personal expenses. Likewise, a drop in equity due to excessive personal cash withdrawals or the company sustaining losses can see the debt ratio become too high relative to the owner’s contribution to the business.

The last twelve months have presented challenging times for many business owners, and with closures and lockdowns, many are in a situation where they have had to rely on outside funding to keep their business going. Now that the future is looking a little more optimistic and a return to normal trading is on the way, it’s the ideal time to revisit your balance sheet and see where you stand for the trading ahead.


You may have run your inventory down because of Covid, and in order to meet sales targets, you may need to revisit your current range and depth of product in-store. With interest rates at historic lows, now may be a very good time to secure some additional funding in order to prepare yourself for what’s needed. Likewise, if you have been holding onto cash and building up the equity in your business, it might be time to determine how these funds can be better deployed for maximum results.

Either way, a review of your balance sheet will show how you can best prepare for the opportunities ahead.

David Brown is the president of Edge Retail Academy, a leading jewelry business consulting and data aggregation firm that provides expert business improvement plans to help with all facets of your business, including improved financials, healthier inventory, sales growth, increased staff performance, recruiting and retirement/succession planning, all custom-tailored to your store’s needs. They offer Edge Pulse to better understand critical sales and inventory data, to improve business profitability, benchmark your store against 1,200-plus other Edge Users, and ensure you stay on top of market trends with their $3 billion-plus of industry sales data. Contact (877) 569.8657, ext. 001, [email protected] or



Time to Do What You've Always Wanted? Time to Call Wilkerson.

It was time. Teri Allen and her brother, Nick Pavlich, Jr., had been at the helm of Dearborn Jewelers of Plymouth in Plymouth, Mich., for decades. Their father, Nick Pavlich, Sr., had founded the store in 1950, but after so many wonderful years helping families around Michigan celebrate their most important moments, it was time to get some “moments” of their own. Teri says Wilkerson was the logical choice to run their retirement sale. “They’re the only company that specializes in closing jewelry stores,” she says. During the sale, Teri says a highlight was seeing so many generations of customers who wanted to buy “that one last piece of jewelry from us.” Would she recommend Wilkerson? Absolutely. “There is no way that I would have been able to do this by myself.”

Promoted Headlines






INSTORE helps you become a better jeweler
with the biggest daily news headlines and useful tips.
(Mailed 5x per week.)


Latest Comments

Most Popular