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Napa, CA—Virtually every jeweler we have spoken with since the beginning of this year is flush with cash. For most, the combination of PPP funds & EIDL loans, as well as a far more conservative approach to buying have had a dramatic effect on cash positions. Not only has cash increased, but debt levels have also fallen. The number of retailers who have told us that they have eliminated debt completely is astounding – and is especially notable for those who have never before been debt free.  

Debt free primarily refers to lines of credit, not long-term bank loans. But it also refers to trade accounts payables getting current. The decrease in buying forced jewelers to sell what they already owned (what a concept!) and buy only what they needed (ditto), reordering fast-sellers and stocking up on multi-selling items early, such as diamond studs and other basics. By now, these things are widely known and most everyone is happy: You’ve got cash, but now what?

As if we were all reading from the same script, those who have found themselves with far healthier Balance Sheets (more cash, less debt), are making the same declarative statement: I will never get into debt again! And I believe their sincerity. The problem here is knowing how to maintain your strong cash position. Remember, for many, they are finding this situation new to them. Jewelers are telling me that they have always had bank debt, high payables, and low cash balances. Being in a strong cash position is something that you should get used to as the norm. In fact, this is the way you should learn to run your business and never tolerate any other way. 

How much cash to keep in savings? The traditional number tossed around for individuals is to build an emergency fund of 6-10 months of your monthly living expenses. For your business, you should have on hand in cash, at least three months of your monthly expenses, but I’d be happier with six months. Is that a lot? Yep. Is it too much? Perhaps, but the point here is that I would prefer that you become bullet proof and never have to worry about the business cycle dips, pandemics, road construction, or other disruptions to your business. Having three months of expenses will help you sleep nights, having six months will have you sleep even better.   

But cash produces no return! This isn’t about return on investment; this is about building a solid balance sheet and being prepared for anything that might come your way. This is the same strategy as when you are building any retirement portfolio. Some portion in equities, some in bonds, some in cash, but always, always, starting with your emergency fund. As jewelry store owners, you make these same decisions relative to owning or renting, remodeling your store or even what new brands to buy into. Government stimulus monies aside, cash is built by lowing inventory levels, increasing sales or margins, and lowering expenses. As long as you don’t increase inventory, you will either reduce debt or build cash, or both. But once you get into a strong cash position, as long as you know what your number is and you remove that amount from your checking and place it into savings, you will always be in good shape.  

Even if you’re cash balance is not up to where you would like to be yet, I encourage you to take this opportunity to begin. Open a savings account and take 5-10% of your sales each month and move it to savings. Even better, do it every week and you won’t even miss it. And once you build your cash up to whatever your number is, keep it in the business. Additionally, if you're not currently working with a financial advisor, I would suggest this is a good time to speak with one.

Pleasant dreams.

BIG designs solutions for the wide variety of issues facing the jewelry industry. From the complex and multi-faceted process of merchandising to the challenges of inventory management, BIG has solutions that help jewelers better understand and control their businesses. Call (707) 257-1456 or visit www.bigjewelers.com