Five common business management mistakes are costing jewelers millions of dollar each year. Far too often I see jewelers who are unhappy with their business but they still go to work each day and do the same things as they did yesterday expecting change to happen. So many of the problems, which can and sometimes do cripple a company, arise from basic neglect of five important areas of business. Many jewelers don’t even know how they are performing this year compared to previous years. These professional men and women are making business decision based on incorrect assumptions and it is costing them large amounts of money.
The five most common mistakes made within the jewelery industry are:
- Working in the business rather than on it
The single biggest mistake made by the majority of small business operators is they work 100% of the time in their business rather than devoting some time to work on it. Day to day pressures and the size of the business often deny owners the time to step back from the coal face to actually work on the business.
However, not taking the time to step away from the business to analyse its operations can mean loss of productivity and profit. Take the analogy of the wood chopper who in his first day cut down 20 trees, five more than anyone else had ever cut down. By the fifth day he was still swinging the axe just as hard and just as fast but he had only cut down eight trees. When his boss asked him why he had only cut down eight trees he replied ‘I don’t know. I am working just as hard as I was on my first day.’ When his boss examined the wood chopper's axe he said ‘Here is your problem, your axe is blunt. Why haven’t you sharpened your axe?’ to which the wood chopper replied “Boss I am too busy chopping down trees to sharpen my axe.”
Many jewelers are too busy chopping down trees to sharpen their axe!
- Lack of budgeting and profit planning
Gone are the days when you can go to work without plans and goals. It is vital that jewelers set two types of business budgets - a cash flow budget and a gross profit budget. The cash flow budget is essential for planning operational costs and capital purchases. A business can run at a profit but still suffer due to cash flow problems. On the other side of the coin, a business may not have cash flow problems but can run at a loss. Either poor cash flow or a lack of profit can bring a business to its knees; therefore it is important that neither is allowed to run out of control.
Many jewelers can’t understand why budgeting is so important today when it wasn’t needed 20 years ago. Put quite simply, 20 years ago we didn’t have the burdens that we are experiencing today. Wages and rent as a percentage of sales are almost twice what they were 20 years ago. Increased taxes and retirement funds are all additional bites out of the sales dollar. Unless jewelers plan for these costs by increasing their mark-up percentage they will be left with little or no profit.
In short, the line between profit and loss has narrowed considerably. To stay on the right side of the line requires budgeting and planning.
- Measuring sales banking as opposed to gross profit generated
Traditionally jewelers have measured performance against previous years by comparing sales banked. Some more astute jewelers have added in laybys and customer accounts but the result still remains the same - they are measuring sales. This has been the industry standard for only one reason - effectively measuring performance any other way has been nearly impossible until the advent of the computing era. However, even though the technology is now available, jewelers continue to measure sales. It is vital that jewelers measure gross profit as their first form of performance evaluation. Sales should only be used for discussion purposes with peers within the industry.
- Lack of tight control of the jewelers major asset - stock
If there is one thing that a jeweler becomes defensive about it is his or her buying habits. However, it is those buying habits that cost the jewelery industry untold lost sales every year. All jewelers have a testimony of bad buys that remain on the shelf while they fool themselves that it is good stock and will sell. Welcome to the 21st century - good stock sells, it doesn’t remain on the shelf. Gone are the days you can afford to have 75% of your stock supported by 25% that sells.
Sure, jewelers must never lose the entrepreneurial streak that took them into retail and they need to tempt customers with higher priced items but at the cost of finance today jewelers cannot afford to have 75% of stock taking longer than 12 months to sell. The real cost of stock that does not sell is not the 13% OD interest rate. It is the cost of customer perception. If every time a customer goes into a jewelery store they see stock they didn’t like enough to purchase last time they shopped there, they subconsciously say ‘this shop doesn’t have any nice stock. If customers have to sort through all the jewelery to find a piece they consider ‘good’ stock, their buying subconscious starts to shut down.
Too many jewelers spend a lot of money on advertising to entice customers through the door only to lose a large percent through inadequate stock control. The answer is to get rid of stock that isn’t selling. Put the money back into new stock that has a chance of becoming a fast seller. Balance your passion for good jewelery with business logic.
- Poor team management
How well you manage, motivate and train your team will have a direct bearing on the profitability of your business. A well coordinated, managed, motivated, trained team in a jewelery store will out perform ten to one a group of individuals who are all doing their respective jobs as required. Good people who are treated as a team will think like a team and act like a team instead of a group of competitive individuals. However, teams do not form by themselves.
Management has to make a commitment to pull a team together. Forming a team requires a change in attitude at all levels including owners, managers, sales staff and office staff. If you don’t have a team environment in place, start today by running your first weekly team meeting. Give everybody the challenge to come up with progressive ideas for your next team meeting and ask each team member to list at least one idea that will make their job easier.