written by David Geller
Let’s define a Sugar Mama with this example. You and your spouse both earn a yearly salary of $50,000 a year each, thus total household income is $100,000.00, take home, after taxes. Your total expenses are $95,000 and so you can pay everyone and save $5000.00 in a year. Life is good.
But now you have adopted a child and total expenses are now $120,000.00 and so to make ends meet you start charging on your credit cards these added expenses. You no longer can save any money and expenses on the card keep piling up and your debt increases-you’re in the whole $15,000 a year. Life’s not so good.
You spend more than you take in and so your spouse who was a receptionist in a doctor’s office finally graduates nursing school and gets a job as a nurse at $80,000.00 net a year. Thank the lord. Now household income is $130,000; expenses has been $120,000 so we are ahead of the game.
Thank the lord for your SUGAR MAMA!
This is your jewelry store to a tee. How so? You spend more than you can afford on inventory. Too much or too many pieces. You can go into most POS programs and analyze sales by category and price point-I’ve helped many look at a simple report. A good store should have a yearly turn of about “1”. Buy it in January, sell around Christmas time.
Simple example: Diamond fashion earrings. In a year you sell 24 pieces. If you sell all of them this past year typically you would expect the coming year to stock 24 as well and keep 24 pieces in stock – enough for a year.
But the report shows your stock level is not around 24 pieces but 42 pieces, almost 2 years’ worth. If you sold all 24 pieces again this year the total retail sales are not enough to pay the vendor’s bill for the 42 pieces you bought. So how does a store pay for more “things” than it has enough income to pay the bill?
Simple: Put it on a credit card! Actually, excessive inventory makes up for most of the debt you’d see in your accounting program. Just add up:
- Accounts payable
- Credit card debt
- Lines of credit from the bank
- Loans from the owner
Easily ½ to ¾ of debt in a store is because of buying too much-more pieces than can be sold in a year.
How does a store keep from going under with this problem? Simple
Your store has a SUGAR MAMA!
You might ask “Who’s my sugar mama that will help me pay my debt?” Simple, it just doesn’t hit you in the face. Your sugar mama is
- Profits from shop sales, which has very little inventory.
- Sales and profits from selling scrap gold. Welcome back my ever-loving Sugar mama! I forgot all about you from 2010!
You see if you sell a $1,000.00 at ring at keystone you might have to have $500,000 in inventory on hand just to make a profit of $500.00 OMG!
But when you make a custom design ring for $1000.00 the inventory required might only be a measly $6000.00. Same goes for any repair, same low inventory.
Now your sugar mama has returned. BUYING AND SELLING GOLD LIKE CRAZY. All it takes to make money in buying and selling gold and diamonds is about $6000.00 in your checkbook and you can send the items immediately to a refiner or dealer and get a check in 2 weeks. What a sweet sugar mam.
But just because your spouse got a $30,000.00 a year raise with a new job doesn’t mean you can now go out and buy 2 new cars, take great vacations, buy expensive shoes and big TV’s. You still need to control your home expenses.
In your store you must do the same. Having the buy gold sugar mama shouldn’t relax you from controlling spending in your store and it’s ALWAYS overbuying and not keeping inventory at correct levels (turn of 1). You might at home have to sell a car for less than you paid for it to free up cash and reduce loan payments.
You might have to do this in the store now as well even though your sugar mama has returned. Take heed, make money while it comes in but also get rid of most inventory over a year old.
All it will do is reduce your debt and increase your bank account without affecting sales volume-it probably will increase it because customers don’t see tired inventory but really new items.
Embrace your sugar mama but keep her under control!
David Geller
