Getting Real About Profits

The question every business owner needs to ask: Do you have a business, or have you merely bought yourself a job?

Most jewelers probably ask themselves at some point why they are in this business—and on days when the customers are cranky, a valued employee quits, a shipment is late, or the bills are piling up, they might have trouble finding an answer.

For many jewelry store owners, it’s the appeal of self-employment, the promise of greater control over their working life, better profits, and a more secure future than they could ever find working for someone else.

In reality, however, too many owners are unknowingly enjoying only the first of these three advantages to running their own business: more control. If they put pencil to paper, they may find they are kidding themselves that they have a profitable business. Why? Because, like “Sue” in the example below, they aren’t receiving sufficient return for all the hours of effort and the dollars of working capital being invested. Consider this:

Sue earned $70,000 from her ­jewelry store this year, including a salary of $50,000 and a profit of $20,000. She paid $250,000 for the business two years ago and believes it is worth the same today. She works 50 hours per week (approximately 2,500 hours per year). Based on a 25 percent return on investment (ROI) on her $250,000 purchase price, Sue would expect an annual return of $62,500 from owning the business ($250,000 x 25 percent). This figure represents the 25 percent she deserves for the risk she is taking, compared with the return on risk-free investments such as bank deposits or government bonds. (Although this represents a greater premium over non-risk rates than three or four years ago, it is fair to say business has grown much riskier.) If Sue deducts the $62,500 that she should earn on her investment from her total income ($70,000), she is left with a figure of $7,500. This is Sue’s “pay” or the reward she gets for the effort she has put into the business. When she divides this by the 2,500 hours she works per year, she is effectively earning $3 per hour to manage the store.

Sue is not earning nearly enough for her labor and her initial investment, and all she has succeeded in doing by becoming self-employed is buying a job—and a poor-paying one at that. If she invested her money elsewhere and went to work for someone else, she would be earning a lot more without the responsibilities of business ownership.

If you’re in a similar situation, are we suggesting you sell your store? No. Instead, you need to turn these circumstances around by thinking—and acting—as your organization’s CEO, focusing on effective management and financial rewards.

The biggest difference between a successful owner and an unsuccessful one is the ability to concentrate on the important rather than the urgent. This means doing the tasks that will move the business forward, the types of tasks that will earn $100 or more an hour indirectly—such as financial planning, effective inventory budgeting, buying and management, marketing plans, and pricing revision—and delegating easier, less important tasks (like fitting watch batteries) to a staff member. A successful store owner constantly asks, “Is this the best use of my time?”

Here are a few guidelines to help make your time more productive—and your store more profitable:

1. Review all goals and priorities for the week ahead. In the current economic climate, owners should not only be working to reduce costs; they should also be setting goals to increase profit margins, clear aged inventory, increase sales, improve team communication, and reorder fast sellers.

2. Prioritize tasks. Choose one or two tasks that can make the greatest difference in the shortest time, and write them down.

3. Plan when to take action. Ideally, break tasks down into one-hour blocks. Everyone can find an hour to concentrate on a key task, but many struggle to find three hours out of a busy day. Choose a time of day with the fewest interruptions.  

4. Plan where to take action. Find private space with no distractions and with all of the things required to complete the task. Sometimes performing important tasks at home first thing each day is more effective than trying to do them at the store.

5. Schedule or delegate the task. Wherever possible, assign responsibilities to someone else to free up time to move on to the next item of business. Remember, delegation is not abdication.

Careful planning and preparation can make all the difference in achieving the full rewards of business ownership. As Abraham Lincoln once said, “Give me six hours to chop down a tree, and I will spend the first four sharpening the axe.”

It’s time to sharpen that axe.

Illustrations by Jason Lee