Understanding the Finances Involved in Starting a Gemstone Business
Gemstone trading is currently one of the fastest growing segments in the market, with its value increasing exponentially each financial year. Even with the setback that occurred during the pandemic, the market value for gemstones is still considerably high. Several consumers are now leaning towards colored gemstones compared to traditional precious stones due to their rustic nature and ethical mining practices. That being the case, there has never been a better time to invest in the gemstone business than now. Let’s look at a few financial aspects involved in starting a gemstone business.
Why is it important to understand finances in the Gemstone business?
The first thing to consider when planning a gemstone business is the capital investment that is required. Gemstone businesses are notably capital-intensive and require both physical labor and a good collection of products. The business usually involves a selection of products in the same category, which may make capital allocation tricky. Moreover, the industry is also quite fast-paced in changing trends due to which the finances have to be well thought out. Hence, it is imperative to sort out and understand your finances before you begin.
Start by attending workshops and networking through trade connections to gain an idea of what products to invest in and how much to invest. You can make use of automated softwares to manage finances in a better way.
Few things you need to know before you select your inventory
Allocation of finances
Gemstones are always in demand and this gives you unlimited options on the products you want to invest in. To ensure that you don’t become heavily invested in one product, allocate a certain percentage to each product. Selecting this percentage again depends on your target market, clientele and risk tolerance. You should always leave a certain amount as ‘dry powder’ to invest when there are nice opportunities.
The gemstone trade is highly prone to market fluctuations which can cause a severe rise or fall in the price of the gems you have invested in. Therefore, any investment you make needs to be on a long term basis.
It is important that you hold your stock and reserves for the day the market is flourishing. Let us try to understand this with an example – In the last two years the prices of teal sapphires have increased exponentially due to an increased demand in engagement rings. Had you invested in teal sapphires a couple of years back, the current market would have been a boon for your investment.
A good example of this is investing in a variety of sapphires. With their enormous range to choose from, it is inevitable that some form of sapphires are always in vogue. For example, while blue sapphires ruled in the century, the last decade has witnessed an enormous appetite for bicoloured sapphires like teal sapphires and mermaid sapphires. We have discussed why sapphires, and not diamonds, are your best bet against an inflation here.
How to insure your business against fast changing trends, especially in the coloured gemstone industry ?
As you know, trends in the coloured gemstone industry keep changing at an unreliable pace. A stone that is trending today may suddenly become outdated the very next day. As a trader, it is crucial to keep yourself updated with the latest trend. An easy way to do so is to participate in trade shows and webinars. Additionally, you can attend networking events to help build relationships and expand your trade connections. You can also refer to articles related to the gemstone industry that are available on the web. (You can begin right now by reading our informative blog posts here!)
How do the finances change in a sustainable sourced and ethically driven model?
A crucial point to consider while planning the finances of your gemstone business is whether your products are sourced ethically and sustainably. The consumers nowadays are becoming more and more aware of the environmental desecration and unethical work practices that traditional gemstone mining involves and they are switching towards products that are more eco-friendly, sustainable and ethically driven. In fact, research suggests that nearly 6-10% of couples nowadays consider ethical sourcing an important factor while selecting their engagement rings. As a result, there is more demand for these ethical and sustainably sourced gemstones.
As a gemstone trader, it is imperative to be aware of the mining regulations and guidelines and whether the mining is carried out in compliance with those regulations. For example, at Navneet Gems and Minerals, some of our best selling gems, like teal sapphires are sourced from Australia, where mining is strictly regulated. Due to these strict mandates, there is documentation at every step, which makes it easy to trace. Hence, it may be wise to allocate more capital towards ethically sourced gems.
Importance of Corporate Social Responsibility (CSR)
For years, gemstone mining has never had a positive association with the environment. Extensive mining and excavation, in search of gemstones, has unfortunately deteriorated the earth’s terrain and destroyed many natural habitats. To curb this negative impact, it is essential for a gemstone business to undertake a social responsibility to help the community and the environment in any way it can. Many non profit organizations working in this sector recommend setting aside 2% of your annual profits on CSR.
At Navneet Gems and Minerals, we work hard to reduce our carbon footprint actively. We strive to ensure our gemstones are ethically sourced and do not jeopardize the health and safety of the workers. We adhere to our Corporate Social Responsibilities by ensuring our raw products are environmentally friendly and by following utmost safety in our factories.
As part of CSR, we have been making it a point to plant hundreds of trees across the African subcontinent. You too can take on such social endeavors and give back to the community while growing your business! It can also help you with marketing your business.
We at NGM have been contributing part of our monthly profits to One Tree Planted, a global organisation working proactively to increase the forest cover in the world, lost to various commercial processes.
Here are a few takeaway points on the finances involved in a gemstone business: