According to some analysts, the price of gold has peaked and the metal price has begun a slow decline. That will be good news for consumers looking to buy jewelry and to jewelers looking to sell it. Others believe that gold is going to ramp up again due to the various dramas playing out around the world - some political, some economic. Whether the price of gold increases or decreases in the future, there has been a noticeable (and in some cases, dramatic) drop in over-the-counter (OTC) purchases during the past year. This decline in scrap purchases, along with the corresponding gross profit associated with them is impacting the cash flow provided by OTC purchases.
When we analyze the financial statements of our Plexus Performance Group™ members, we separate the income and costs associated with OTC activities from normal sales. In fact, we place the Income, Cost of Goods Sold and Gross Profit from Scrap Gold at the bottom of the income statement below Net Operating Income.
We report the numbers this way because jewelers were thinking of their business as doing, for example, four million dollars in sales when they were actually doing three million dollars in sales and one million dollars in OTC scrap gold revenue. The result of reporting the income, cost and profit of OTC purchases below Net Operating Income has been to see the health of the business before the profit contribution from scrap purchases.
Separating the OTC numbers from normal operations has highlighted the jeweler’s growth in expenses, which had been based on the total revenue of the company, instead of what they should otherwise be based on, normal jewelry, watch and repair sales; or everything other than scrap gold. The results in some cases have shown losses from normal jewelry operations with the company’s profit coming entirely from scrap gold! If we could rely on scrap gold profits for years to come, this would not be an issue for us. However, we have seen revenue from OTC purchases declining significantly in many stores leaving income and expenses from operations to stand alone once again.
If you are not currently separating your OTC purchases and profits from normal jewelry operations, please consider doing this on your income statement to see how OTC activities are affecting your business.
If you are interested in learning more about joining a Plexus Performance Group™, please contact me at email@example.com or Ellen Falcinelli at firstname.lastname@example.org.