Financing watch inventory

Most dealers eventually meet the same wall: a good watch is available and the money is tied up in watches that haven't sold. Financing is how dealers get past that, and it's also how some of them get into trouble. Borrowed money makes a good buying decision better and a bad one much worse.

This is general information about the options, not financial advice. A watch bought with borrowed money still has to sell for what you expected.

The honest first question

Before looking at any of these, ask whether the constraint is really capital. If watches are sitting unsold, more money buys more watches that sit. Financing helps a dealer who sells reliably and is turned away by timing, not one whose stock isn't moving. The aged inventory article is the better place to start if the shelf is full.

Using your own capital

The simplest route, and the cheapest. Its cost isn't zero, though: money in a watch isn't available for the next one, which the carrying cost article puts a number on. Knowing that number is what lets you compare the alternatives honestly.

Business credit

Business credit cards and lines of credit are common for smaller purchases and for bridging a few weeks. They're quick and flexible, and expensive if the balance rides. Two rules keep them safe:

• Only borrow against a watch you're confident of selling quickly, and know what the interest costs over that period.
• Never let the repayment depend on one sale. Watches sell later than planned more often than earlier.

Partners and investors

A partner with capital and no time, matched with a dealer with time and no capital, is a natural fit. It's also a relationship that needs paperwork before money moves:

• Who decides what to buy, and at what price.
• How profit is split, and when.
• Who bears a loss, and what happens if a watch sells below cost.
• Who owns the watch while it's unsold, and where it's stored and insured.
• How either side exits.

Get it in writing, and take legal advice on the structure. A handshake arrangement between friends survives right up until the first watch loses money.

Memo and consignment

The trade's traditional way of holding stock you don't own is memo: goods placed with you to sell, paid for when they sell and returned if they don't. Consignment from private owners works similarly. Both let you show watches without tying up capital, and both make you responsible for something you don't own, with terms that have to be explicit. The consignment article covers running those arrangements properly, including insurance.

Selling a piece of a deal

On larger watches, some dealers split a purchase with another dealer, sharing the cost and the profit. It reduces the capital each side commits and the loss if the watch disappoints. As with partners, write down who owns it, who holds it, who sells it, and how the proceeds split.

What financing really costs

Whatever the route, put a number on it before you buy. Interest, a partner's share, or a memo arrangement's terms all reduce what the deal earns you. Add that cost to the deal in the max buy calculator, as a carrying cost or a lower target margin, and see whether the purchase still makes sense. A watch that's only profitable if you ignore the cost of the money isn't profitable.

The risks worth naming

• Slow sales. The payment schedule doesn't care how long the watch takes.
• Overbuying. Available credit makes it easy to buy more than you can sell.
• Personal guarantees, which put your own assets behind business borrowing. Read what you're signing.
• Concentration, where borrowed money goes into one expensive watch.

The cash flow article covers keeping a buffer, which matters more, not less, once borrowing is involved.

Getting help covers the other thing dealers buy when they grow, which is time.