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Where Did All My Profits Go?

Understanding cash flow vs. profit can affect how you manage your business.

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A COMMON COMPLAINT FROM retailers after the CPA has completed the end of year financials is, “Where is the money?” Often, they have reported a healthy profit (which also leads to a bigger tax liability to the IRS), yet their bank account never seems to reflect the profit the business makes.

It’s a common issue. Most store owners expect their profit to show up in the bank account — and that’s perfectly understandable. After all, profit is supposed to be what you have left after paying your operating costs and vendors. Yet, rarely does it align.

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The reality is that cash flow and profits are two different things. Cash flow reflects the ins and outs of your bank account over a period of time. Profit is about your income and the expenses that relate to that income. That means the expenses don’t necessarily line up with when you paid them.

One of the best examples of this is the inventory you buy. For instance, let’s say Bob’s business does $1 million in sales for the year. With a keystone markup, Bob makes a gross profit of $500,000 from his business. After expenses of $400,000, his net profit is $100,000.

The bank account tells a very different story. Although the cost of goods sold is $500,000, Bob didn’t necessarily spend that much on inventory for the year. If he spent $600,000 on inventory purchases, he would have increased his inventory holding by $100,000. However, he didn’t sell the extra inventory, and therefore, it doesn’t pay for itself, but it will still come out of his bank account!

Timing is another important factor in paying vendors, too. Whether you pay your vendors immediately or pay the amount six months later, this will affect your bank balance, but it won’t affect your profit — the item is an expense when you sell it, not when you pay your vendor.

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Your bank account can also be affected by assets that you buy. A new vehicle that is deemed a business asset may leave a hole in your bank account now if you pay cash, but as a business asset, its cost will be spread over several years to reflect when it is used. Your profit will look healthier than your bank account in this situation.

Of course, another factor to consider is personal spending. Withdrawing a good deal of money from your business account to support your lifestyle isn’t a business expense and won’t decrease your profit. It will, however, certainly lower the balance of your bank account.

It’s important to understand this difference between cash flow and profit so you don’t get caught spending money you don’t have.

Sherry Smith is the director of business development for The Edge Retail Academy.

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These 3 Jewelry Marketing Approaches Will Draw More Self-Purchasers To Your Store

It begins by focusing your advertising on ideas rather than products.

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A ROUND THE WORLD, women are primary decision-makers for high-dollar purchases. If you are not marketing to women in ways that appeal to and engage them, you’re not benefitting from their purchasing power.

Here are three marketing suggestions to improve your female appeal, and which illustrate the differences between male and female buyers.

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1. Attract women with ideas. Picture the typical Ace Hardware ad. Ace focuses on products and prices. They know men come to their stores for specific tools and solutions. Ace’s lifestyle advertising features outdoor cooking, lawn care, and similarly specific objectives.

Those themes all appeal to the average guy’s get-it-done style of shopping.

In comparison, Home Depot’s advertising focus is soft. They convey the joy of making a home beautiful and welcoming through fun projects with one’s spouse. Home Depot is not selling tools — they’re selling hearth, home, and togetherness.

When women shop for luxury goods, they consider how they will feel when they have the object, and how the object will affect their happiness (even if the object is not for themselves).

When you advertise, do you push specific items? Or do you promote the ideas your business stands for, and how you contribute to the quality of your customers’ lives? Specific item promotions are useful for your male shoppers, but to bring in more women, you must tell meaningful stories.

2. Nurture leads with social proof. Social proof is the psychological tendency of people to conform (also known as herd behavior). The digital marketplace skillfully exploits social proof to make sales. Ratings, votes, reviews, likes, comments, and shares are all forms of social proof.

But remember that men and women use social proof differently. Men prefer votes and ratings, because they want measurable, specific feedback. Women use dialog to enhance the shopping experience, so they appreciate comments and reviews. To attract female buyers, develop a library of reviews and comments.

3. Merchandise your store for themes, not things. Walk into any Williams Sonoma, and you’ll find theme-driven baking displays that include bakeware, utensils, mixes, and the latest color Kitchenaid mixer. Williams Sonoma does a phenomenal job of merchandising to women (not coincidentally, women hold almost 60 percent of Williams Sonoma’s top executive positions).

Men like to cook too, but they are more likely than women to head to a restaurant supply store for their kitchen purchases, partly for the prices, but also because restaurant suppliers offer the compartmentalization and categorization they crave.

Women don’t shop for things; they shop for themes. Merchandise around themes in your store, and women will gravitate to those sections and displays.

These are just a few of the ways in which female buyers respond and behave differently than male buyers. If your buyers are more than 50 percent male, you could grow your sales instantly just by attracting more women to your store and keeping them there long enough to close.

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Sales Truth

Why A Well-Told Proposal Story Could Help Close The Sale

It starts with getting the groom-to-be involved.

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WHY IT IS TRUE: He is in your store to purchase an engagement ring, a totally unfamiliar task for him.

PLAN OF ACTION: Ask him how he plans to propose. If this is something he has not considered, take this opportunity to share several beautiful proposal stories your clients have used. Ask him questions, get him involved, encourage him to share his plan, and help him embellish it in any way you can.

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What This Jeweler Learned From a Cruise Line Changed Her Store Forever

Here’s how it can change yours too.

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WE TOOK A cruise for my mother-in-law’s 80th birthday. The enchantment started the minute we walked aboard the ship. People called out our name and joyfully announced our arrival. Next, customer services had our vacation packet waiting and warmly discussed all of our shore excursions, on-board activities and general information.

You might ask why I am going on about an itinerary, but it wasn’t just the cruise — it was the culture of the engaged employees who delivered a sense of welcome, happy-to-oblige helpfulness and genuine courtesy on all levels that was so alluring.

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How would your store or your employees compare to that kind of service? When I came back, I immediately had the discussion of “Customer Magic” with my team. A cruise salesperson has a very limited window of opportunity to engage a client, exchange pertinent information, and then together create a satisfying outcome. Most of what they will achieve depends on their presentation, execution of interests and the level of engagement that ensures they have transformed this individual into a loyal customer who will return for another round — not unlike a new customer coming into your store on a virgin excursion, exploring to see if you have what they need.

Did you greet them happily or meet them at the door? Did you engage with a smile and genuinely helpful attitude? Did you give a sincere compliment as an icebreaker? Did you extract the information required to make their experience feel welcoming and helpful by asking open-ended questions? Could you satisfy their expectations or meet their needs efficiently? What did you do that would gain their trust? Ultimately, in this limited engagement, did you earn their loyalty?

Every customer, every time, needs the red carpet treatment if you intend to catapult your store to the forefront from the plethora of retail choices. With a limited window of opportunity, presented from five to 50 times a day depending on your traffic flow, are you making the most of each customer interaction? How are you training your sales team to be guardians of guaranteed customer loyalty and to do what needs to be done to make this a great experience? On every level, from owner to salesperson to jeweler to gift wrap, is this a cohesive team helping to insure that each customer is fulfilled, and thus will return in the future?

Wish lists, rapid repairs, quality merchandise, free inspections and creature comfort amenities create an exchange that resonates with your clientele, and then they share with their peers. How would you rate your store on the “Customer Magic” scale?

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