Should Your Pawnshop Need Funding or Line of Credit to Grow?
“If a business is growing its loan balance & running its operation properly, should it need to borrow money to continue growth and achieve maximum profitability?” Dan Reynertson
Every time we land a new client, we get asked 3 questions . The first question we always get asked is “do you have banks that like or are willing to fund pawn shops”? The second question we get asked is “do you believe pawn shops should get or need funding to grow their loan balance in their business”? I want to focus on those two questions here today.
In the beginning of this blog is a quoted question that asked, “If a business is growing its loan balance and running it operation properly Should it need to borrow money to continue that growth”? While we strongly encourage your business to have a line of credit for emergencies only, we believe that the unpopular answer to this question is simple. We believe that a business in the pawn industry should not need a line of credit or any funding for anything other than really rare situations, extremely large purchases that people are coming to get cash for at random times, or unless it involves the purchase of real estate associated with the business. The reason for this is simple. You cannot and should not become dependent on other peoples money to be successful in this business because it should grow and breed cash, and if it is not, it is not a healthy business. Plain and simple. That my be hard or upsetting to hear but we believe (and can prove it for free to anyone) that there is more than enough money in each and every store to be able to fund a healthy loan balance without having to borrow money from other people (the exception would be new store openings, but you can fund them yourself if you plan long and hard enough and don’t need the bank for them either). The average store size that we work with is roughly around $650,000 in pawn book per store and has around $1,000,000 or so in sellable inventory (the cost of the inventory not retail value). Surprisingly enough, almost every single one of our clients has some sort of banknote or line of credit tied to their pawn business that they are using regularly to support or try to stimulate growth in their business. If you were collecting interest every month on those loans and selling at appropriate level on that inventory , why would you ever need to borrow money to grow your business? We work in states and countries that are 1.5% interest charges all the way up to 35% at the highest. Lets assume that you can net 10% or higher in interest charges each month on that balance (which is low on average in most states). That means $65,000 in service charges per store on average. With one million in inventory cost our average clients sell about $750,000 annually netting them a gross profit (after COGS) of about $400,000. That is nearly $40,000 more each month.
Knowing that most of our clients are hiring us because they know they are not making the money they should has made us experts on helping them grow without spending any money to do so let alone borrowing more to fund that growth! We recommend not borrowing money to fund growth, open new stores, or add more staff unless that funding for the new store involves the purchase of real estate as well. We got into this business with one mission years ago. And that mission was to help pawnshops make more money without having to spend a ton of money to do so!
"If you need money to grow your loan business, our simple question is to you, do you know what your pawn balance is currently netting you versus what it should be?"
So Why Do Some Need to Borrow Money?
There are many reasons why pawn businesses feel that they need to borrow money to grow. Here are the top ones that we hear and see in almost all store visits and client engagements.
Bad or not healthy pawn loans – plain and simple, if you are loaning too much on items with the expectation the customer will pay the most interest possible, it is proven to not work. We can prove it with hundreds if not thousands of stores worth of data over long periods of time. This is especially true if the customers reside in a high interest sate (20% or more per month). To state it simply, if a costumer gets a “maximum dollar loan” on something, they don’t have to be very smart or knowledgeable to understand that they can buy a replacement (sometimes brand new) for what their redemption and interest amount will be after 90 days. Unhealthy loans don’t collect enough interest, aren’t picked back up and therefore are not re-pawned let alone the impact it makes when we sell it. If you need money to grow your loan business, our simple question to you is, do you know what your pawn balance is currently netting you versus what it should be each and every month?
Lack of selling– One of the first questions we ask after a client asks how we feel about funding is what their sellable inventory balance is and how much of it is aged. We Believe that in this business we have lost our edge on the “art of the sale”. Jewelry sales need to be romanced and are impulse sales and most staff do not have any training or detailed knowledge on how to do so. In the example above of our average client that has around $1,000,000 in sellable inventory should never ever need bank money to survive. The reason is simple. That $1,000,000 should net you around $1.9 million or more in retail sales as it sells over the course of 1 year or so. The problem is, like stated above, our average client only sells about $750,000 in retail and if you paid too much for the inventory, you can’t make a profit! If you train your staff to sell, not discount as much, and drive repeat business, you will never need to get bank money again. Sell that inventory. Our onsite training and consulting packages teach you how to do just that as well as how to write good loans and grow the pawn balance without lender money!
Aged Inventory– Part of why stores aren’t selling enough is aged inventory. And the major reason why stores have aged inventory is that they paid too much or have “too much cost” into an item and will not sell it for what the market dictates but instead strive for a “margin” or percentage of cost that is unobtainable because of what they paid for it . We recommend that the market and supply and demand dictates the sales price of an item and that cost should never be used for pricing at item. If you bought a $200 piece of jewelry that is worth $5,000, would you only sell it for $400 because your “margin” told you to? Make sure that all your inventory (especially aged over 1 year) is priced right and watch it sell providing the much needed revenue to grow the business!
Not Maximizing Profitability – in 100% of all onsite training and store visits that we have ever done, we have been able to find substantial cost savings for our clients. Those cost savings come in many ways such as overspending on things, spending too much for a certain services, paying too much for marketing that doesn’t provide a return on investment, and many many other things. Most of our visits and client engagements result in savings and new money found of well over $100,000 or more. How much could that help you grow your pawn balance? Do you know what you are spending your money on? Do you know how much cost savings are available in your business?
Wasting Money on Marketing- One of the first things we look for and ask our clients is, what is your marketing and advertising costs per month, and what return on that money are you getting. In almost 100% of the times we investigate this, we find that most of the marketing that is done is not the right type, isn’t driving customers into your stores and therefore provides little or no ROI. If we cut this out of the budget and get you to spend this money on loan growth or on marketing that actually works, how much would your business grow. What ROI can you actually measure from your marketing? How much are you spending on it each month?
Too much staff or payroll– Do you know what each employee does in the form of transactions per hour, productivity per hour, or profit made to you per hour? Most of our clients do not even know how to calculate this let alone where to find this data. As a side effect, most times we find that our clients are over staffed by 20-30%. This is due in part to the problem of bad loans and not selling enough mentioned above so if those things improve, so does the profit of each person. In the meantime, how much money would you have left to spend if you are truly overstaffed even as much as 10%? We encourage you to find this out now. How much money is each employee actually making you after you pay them?
What is the Alternative to Getting Funding or Borrowing Money
Our onsite Pawn Process™ training and business development will teach you how to make more money, grow your pawn balance, your retail sales all without having to get funding, spend more money with us again later or on other marketing gimmicks. We are so confident that we guarantee it and dare you to #takethechallenge!
To help feel find out that we are legit and well worth the money, you can do many things. First, you can call any one of our many testimonials. You can also reach out to any of our past clients. If you would like to get that list of references, please call us any time at 727-580-5876 and we will send it to you. Lastly, you can take our free no obligation online mini Pawn Health Check to see how healthy your business is. Click here to find out the pricing on our services and call us with any questions at 727-580-5876. The time is now to #takethechallenge and set yourself up for what could be the best holiday season ever! Stop wasting money and making the banks rich!
