Monday, August 5, 2019

Cleaning Up the Books (Tradecraft)

I am not an accountant. I can barely keep up during my annual conversation with my accountant. I had a year of accounting in high school, probably to avoid some nastier math requirement. I know just enough to understand double entry and the difference between receivables and payables. From talking with my accountant and a business broker, there are a few areas I'm now a bit more cognizant about, things that show value or indicate problems that are often about something simple, like categorization of expenses in your accounting software. That's the exciting topic for today. Let's clean up your books.

Cost of Goods used to be my dump stat. If you have a high cost of goods, it shows your business is not very efficient. It indicates maybe you don't have a handle on shrink, or you haven't negotiated good terms with your suppliers. It might mean you're a bad buyer. A high cost of goods may indicate an industry problem, which is bad if you're trying to sell your hobby game store to someone uninitiated as a kind of toy store thingy with tables.

I actually track my cost of goods daily, so when I saw the difference between my real, spreadsheet cost of goods, and my fake, Quickbooks cost of goods, I had to figure this out (also Quickbooks is always realler). When I presented my income statement, my business broker gave me a disapproving look with my high COGS. What happened? What happened was I was dumping miscellaneous charges into cost of goods, which is a major no no. Be extra careful about what goes in this category, since it indicates so many possible problems with your business. If you have to dump something into a category, do it into a discretionary one like office supplies.

Office Supplies are pretty discretionary. Everyone thinks they could come in as a new owner and reduce waste of office supplies. My accountant encourages me to put anything consumable, anything not clearly durable, into office supplies. Office supplies also gets depreciated immediately, unlike durable goods, which are depreciated over years. so if it's in a gray area, it's office supplies. Not sure what it is? Office supply. Never use miscellaneous. Miscellaneous is a question mark. You don't want questions in your books. Answer the question!



Payroll should be broken into multiple categories. Payroll expense, taxes, payroll processing and insurance. Each of these have different tax consequences. Each expense can be attacked to drive them down in a different way. Speaking of payroll, have you given yourself a raise recently? Your pay is a discretionary expense so brokers don't care. It reduces your end of year tax burden and saves for your retirement with social security payments. It forces your business to compensate you first, unlike profit distributions which happen last, when it's convenient. You deserve a raise. You're welcome.

Rent is one category that should only ever include rent expenses. Your business value is backstopped or dragged down by your lease. No successful business can predict continued success if it has to make a costly and unpredictable move, and if your rent expense is dragging you down, there's likely nothing to be done about it. Personally, I can't imagine any business would sell with a month to month lease. I would insist on a lease as long as your earnings multiple from the valuation. If your business is valued at 3x your earnings, I would want to see at least three years left on the years. I wouldn't invest in a business until I saw a copy of the lease. Someone believed in you to be around for years. I want to see that. Heck, I want to at least see your name on that contract, especially if I have to approach the landlord to assume it.

The main take aways here are be meticulous with your books. Make sure fixed expenses and discretionary expenses are not mixed. It's easy to get sloppy. My credit card bill averages around $15,000 a month and it's painstaking to make sure every line item is categorized properly. I download reports, try to figure out each charge, and I'm especially careful with those cost of goods, since they can look like other things. It doesn't really matter if it's just you in the business, if you ever want to sell or bring on partners, you'll want to be meticulous and you'll wish you had done it years before.



Saturday, August 3, 2019

Tumultuous with a T


My store has had a tumultuous year so far. Our sales are up 23%, with net income up 230%, which is easy to do when we were at a negative net income a year ago at this time. The San Francisco Bay Area is on fire, thankfully only figuratively. The Bay Area would be the world’s 19th largest economy, if it were tracked that way. I just want to crow about how well we’re doing, how well everyone here is doing, so this post doesn’t sound like a pity party.

We have transitioned nearly our entire staff this year, a staff that averages a turnover every three years. It has been a huge hit to our institutional knowledge, which means training has been a huge expense. Training means overlapping, unproductive shifts, and it’s is our single largest expense this year, when you also include the tremendous wage inflation we've got here in California (at the bottom tier of employment). Starting wages for part timers are going up a dollar a year, but it’s not fast enough for many, who criticize us for not having every job starting at a living wage (likely in the $20+ range). We’ll get there Felicia, just give it a minute. Enthusiastic new staff are a strong reason for that 23% growth, most of it really, so you get what you pay for.

I will refer to 2019 as my Year of Entropy, assuming my store makes it out alive. Besides expensive staff transitions, our drink cooler died ($2,000). One of our two, multi ton air conditioning units gave up the ghost a couple weeks ago, requiring a new compressor ($3,000). By the end of the year, we’ll need two new computers, including a replacement of our six year old POS system which will need the POS software and hardware reinstalled ($5,000). Overall, add these expenses to the usual entropy of plumbing problems and CAM increase and it’s about $20,000 out of pocket.

We’re still a profitable business. About half that profit goes towards construction loans, so I feel we’re investing in the business each month when those checks get processed, even if nothing new arrives. I’m thankful to have windfall profits in a year with crazy high expenses. Imagine having flat sales and all these expenses start beating you down. It’s why the threat of failure never goes away for small businesses, never reduces the chance of closing no matter how many years you’ve been in business. 

Are new expenses hitting us while we’re on an upward trajectory or downward? It becomes a simple calculation. Should we cut bait or cast out again? Some of our competitors disappeared this year after doing that calculation. This has added a lot of unexpected energy to our store as the displaced seek new homes. Thankfully there’s light at the end of the tunnel. We haven’t really been walking in darkness, since it's a profitable business. Having debt while encountering the usual entropy is like walking through a dim tunnel while bats fly overhead and muss your hair. You’ll make it, it’s just disconcerting.

Meanwhile we’ll enjoy a little money thrown at re-branding and selling our updated image. We’ve had enthusiasm for our new logo, sold some stickers, and talked with people who were unaware of our previous brand identity, which is currently limited to our website and business cards.


Saturday, July 27, 2019

Logo

When a company changes their logo, it's generally a group exercise in self pleasuring. It's rarely necessary. If you look at the Starbucks logo, the 1987 or 1992 logo is in color, a big transformation, but I personally wouldn't change my coffee drinking decisions based on any of their logos. As for 1971, I'm not sure what's more offensive nowadays, bare mermaid breasts or a black and white logo. And what in the hell is she holding? Are those her mermaid legs? What exactly does this imply?  Is this a coffee shop or a brothel? Sick bastards. Logos are ridiculous and nobody cares.


When I was told we needed to change our logo, my first concern was the circle jerk of pointless design and then cost. Clearly there's no financial benefit to the exercise. We've had the same logo for 15 years. Is it a good logo? It looks good. I like the colors. I like the knight. As for the design itself, I have to admit, it's a giant pain in the ass. Our original logo is terrible, practically speaking. It's an impediment to its very purpose.

The use of black means it looks great on screen with a white background, but it's problematic with other forms of media, which require a very light background. It's so difficult to use, we tend either not to use it at all, making the brand identity somewhat weak, or we reverse the colors to put it on a black background with the logo in white. We mutilate the logo to make it work. It's a problem. But is it worth fixing? Enter the business case.

When it came to staff shirts, we resorted to white embroidery on black shirts. originally I had white shirts with a full color logo, but those were loathed by everyone, and they were hard to keep clean. You may not know this but everything we sell sits in a dirty warehouse before getting to us and gets even dirtier as it sits on our shelves. Keeping a retail store clean is a major feat, as it starts dirty and only gets worse. White shirts were always getting stained and looking bad.

The black, embroidered shirts we currently use, with a boring plain white stitched logo, turned out to be incredibly expensive. Each shirt costs $70 with embroidery. They also need to be made in batches in various sizes, so we're almost always buying more than we need, in sizes we hope will be useful. Invariably, those sizes don't match our diverse staff. So over time, we've been stuck with a box of very expensive shirts in the wrong sizes. The cost of bad design turns out to be very high.




Our new shirt design features a full color patch that can be sewn onto a variety of shirts. We choose the shirt from the Work Wear store next door, grab a patch, and sew it on. No big batches of variable sized, expensive, embroidered, logo perverting shirts. Also, if I want one of my robust, tactical shirts from 5.11, I buy it in the right color and sew on the patch, something not available before. Total cost per shirt for employees will be $25 or so, with no waste.

Then there's the increased merchandising we tend to avoid with the old logo. We've already ordered new patches, pins, stickers, and more. We'll have hats and t-shirts eventually. These were difficult to design with the old logo requirements and they sold poorly.

Now let's get onto the minor controversy of our design choices. We spent about a month defining the needs of the new logo with half a dozen designers. We identified core requirements. It should maintain the design elements of the old logo: the knight, the horse, the lance, the direction it's all headed (very symbolic) and of course, a diamond. The logo needed to remain fairly simple. The name needed an updated font that was compact with the design. The previous font used long, horizontal text and has been nothing but trouble for 15 years. The color black is problematic. It goes with nothing but white. Those who use black in their logos hamstring themselves design wise, so we omitted that. In fact, I would probably pick a different store name without a color in the title if I were to do it over. I have few regrets, but "black" is one. Let's take a look at the new design:




I think it pops. Rather than black, we have a dark blue, which works much better and represents one of our colors. It's a darker blue than our original logo (which some say was purple, a color I love). The diamond color, away from black, represents a shift in store colors that came about with our big construction project, three years ago.



This orangish yellow is called Curry in Sherwin Williams colors, which is the color we painted our staircase. It's a color that matches our birch fixtures. It provides a pleasing blue and gold ambience, the colors of the local university, UC Berkeley. 



This shift in store colors came in a moment of crisis. The Curry color came from a decision I made with the architects when it was clear our paint color choices weren't working in practice. I was distracting myself at the time with another project, a used Jeep I was about to buy in Utah, because Utah was the closest location of a Jeep in this exact color I was smitten with. I had to have not only the features I was looking for, but it had to be in that color. It was clearly on my mind. Originally the Curry color was white, but when we painted it on on the staircase, it looked terrible.



So the color of the staircase and thus the logo got their color from a Jeep. The Jeep is in a Chrysler color called Amp'd. And thus our staircase became Amp'd, and our logo became Amp'd. And for the foreseeable future, we shall be Amp'd. Most people like the new logo, once they've accepted (or more often overlooked) the diamond isn't black. It's a tough ask, but if people can accept the Starbucks mermaid isn't holding up her legs suggestively any longer, I think this can be overlooked. Personally I love the direction of the logo. I especially love I won't be paying $70 each for a box of useless shirts. 




Wednesday, July 17, 2019

Model for the Good Store

"And here is where we thought about putting in a cafe."

This business is one of constant brainstorming for the successful. For most stores, which I will maintain are not very good (fight me), the answer to all questions is often doing the thing you're doing now, but better. More inventory, better trained staff, better events, an improvement process and an upgraded look. Most stores don't need a cafe to be relevant.

They should know by looking around where they could spend the time or money. You could expand and upgrade for quite some time, really, but most stores struggle on a daily basis and never get the chance. It's the curse of under capitalization in a low barrier to entry market. Often it's not even about money.

Visit enough stores and there are simple improvements that just take elbow grease. For many it's as simple as picking up the trash you can see when you look in the window, or re-arranging the product on the damn shelves. Basic retail. Problems I saw throughout Pennsylvania and New York this month. One or two of those stores ran a super tight operation on what you could tell was a low budget operation. One was scrappy and organized and had family and part time staff stocking shelves on a Sunday. That made me happy.

The idea we need to diversify into some new business model is compelling, mostly because successful business owners look for trouble. We want new problems to solve, not the same old problems. I preach how a Unique Value Proposition, over time, eventually becomes only a Useful Value Proposition and then No Value Proposition.

The next thing is a real struggle. But I'm also thinking now that running a really, really good retail model that focuses on serving the community can be Unique. I'm loathe to say this, really, because most of my peers think very highly of themselves. Most store owners think their stores are much better than they actually are. This is often because we don't know how to measure. We don't know how to look at our stores with clear eyes. Most store owners often don't get outside of their local bubble (why I like to visit stores). We also can't even decide what good is.

Get a dozen game store owners together (if you can decide what that means) and they'll argue, Clintonesque style, about the meaning of the word good. Good for one is the most profitable, while other owners will argue that stores aesthetic hold it back from that desired profitability. Some will claim they only meant to serve a small market when they made their polarizing choices. Good to you may just mean a steady paycheck.

The debate about Wizards of the Coast Premium stores elucidated much of this. Other people, not even store owners, are telling you what they believe is good, with rewards attached. Store owners hate this. Try to help one of these store owners with their problems and they will quickly produce reasons for why they do a thing badly. Alright, alright. Maybe you need a cafe after all. I should mention Premium rewards a type of existing store and there are plenty of good stores that don't meet that criteria. It doesn't make them less good.  All Premium stores should be good (a debate in itself), but not all good stores are Premium.

This leads up to my visit with Millennium Games in Rochester New York this week. It's an example of doing the standard model, for a long time, really, really, well. It's notable to me because it's a large store that clearly engages in best practices and a constant improvement process, rather than some unique, large store model. Also, when I say standard model, I'm talking about a basket of game retail best practices, since baseline game stores, as I've postulated, kind of suck.

Millennium is unique as a large store because most large stores appear to have teleported from the past, their inventory, and unique practices, not particularly replicable intact. Other stores appear to have been built from whole cloth with buckets full of money. Millennium is a best practices store, only much, much bigger. As I can't time travel and I don't have buckets of money, this is compelling as a model.

As you walk in, it looks brand new, because they have a process and budget for constant improvement. The retail space is vast and the game space comfortable. There are about 100 photos on my Facebook author page (please subscribe). If I sound like I'm heaping on praise, it's because it's a model for the future, unlike other big stores which are great, but mostly as interesting anomalies. Millennium got there by doing the thing, year after year, only better each time. It's the same thing I do at a smaller scale, and you might be doing. That gives me hope both for myself and for retailers in this trade.

Suck Less

Thursday, July 4, 2019

Independence

I saw this today. I can't authenticate if this actually exists or if it's just a clever meme, but it struck me as important for a couple reasons.

As a lesser reason, I'm running a D&D campaign where the characters seek independence from a powerful empire. The stone reminded me there is a price to pay for such a lofty goal, and being a role playing gaming, that price needs be paid to accentuate the degree of risk and reward. Empires don't go softly into the night.

The main reason  is this struck me as something understood by small business owners. Declaring your independence from working for others is a glorious thing. However, the price to be paid for such a decision can be high. I know many who lost homes, spouses, or eventually declared bankruptcy. Many forgo higher income levels, shifting down in socioeconomic class, often at the expense of their family. Education for your kids will suffer if you live in a highly unequal state like California, where you home value is dramatically linked to education opportunities. An early death is not unlikely, if you look around, as the hours and the gamer lifestyle is not exactly healthy. We lose them young all the time.

Going back to the stone, I wonder how many founding fathers owned small businesses? It seemed like the kind of risk a small business owner would undertake, and of course be criticized later for being an elite who owned a business. That data is thankfully available. Merchant comes right after lawyer if you look at the list, with 30% of the 56 signers being sellers of stuff. These were men accustomed to taking risks. Some eventually paid the ultimate price, but as a small business owner, I understand the rather unique live free or die mindset. I'm thankful for these 56 who gave me the opportunity.

Tuesday, June 25, 2019

Board Game Support Group


Carl: Hello everyone, please welcome Gary to the group. He could use our support.

Group: Hi Gary!

Gary: Like all of you, I buy too many board games. They’re sitting in shrink wrap on shelves.

Group: Nodding approval.

Gary: But I’m mostly trying to sell them to you folks, as a retailer.

Group: Disapproving grumbling.

Gary: But often at a discount, because they sell like crap.

Group: Murmuring with approval.

Gary: You see, as someone whose mostly a role player, I tend to buy board games that interest me. Really complex stuff that makes my brain tingle. But I don’t play them. As my friend Jay says, a good day board gaming is still not as good as a bad day role playing. You know, like the sex and pizza metaphor.

Group: Angry grumbling. Several female hands go up.

Vijay: They can’t all sell badly, what about Terraforming Mars with its eight point four on bee gee gee?

Gary: Yes, Vijay, even Terraforming Mars with its eight point four. Where did you buy your copy Vijay?

Vijay? (Sheepish) Amazon.

Gary: Yes, Amazon. You don’t need me and I shouldn’t be catering to you.

Carl: I bought my Terraforming Mars at your store!

Gary: Oh, when was that Carl?

Carl: At your Black Friday Sale.

Gary: Right, on clearance. *cough* vulture *cough*

Carl: What was that?

Gary: Anyway, this is my first day vowing to order games only for our casual customers, the ones who actually buy from us. People who allow us to sell them games through our demos and our enthusiasm.

Carl: So no more high concept bee gee gee picks?

Gary: No Carl, no more complex board games. Which even at their best, aren’t as good as a bad night of D&D. Or you know, sex and pizza.

Friday, June 14, 2019

The Talk

If I had to give a presentation to a class about my job, my profession, my possibly foolish choice of becoming a small business owner, my main concern is this: I really don't want to sound like an asshole. I say this because I didn't use to be a small business owner, so I know how I sound when I talk about state mandated wage inflation, reckless politicians in Sacramento, and our incoming tariffs from our learning disabled president. I've got enough opinions about politics and policy to really sound like an asshole, to everyone! It crosses political boundaries. I'm that good.

Maybe I am an asshole. It's always a consideration. Maybe I should consider the advice of Raylan Givens: If you meet an asshole in the morning, you've met an asshole. But if you meet assholes all day, you're the asshole.

Or maybe Master Zhuangzi. To paraphrase:

Once upon a time, I, Chuang Chou, dreamt I was an asshole, pontificating hither and thither, to all intents and purposes an asshole. I was conscious only of my irritation as an asshole, unaware that I was Chou. Soon I awaked, and there I was, veritably myself again. Now I do not know whether I was then a man dreaming I was an asshole, or whether I am now an asshole, dreaming I am a man. 

The distant memory of the man I once was, before I became an asshole, sometimes haunts me. Spending Other Peoples Money (amusingly referred to as OPM), flitting from job to job, voting based on lofty principles with no consideration of financial responsibility. Oh to be a man again.

To really be an asshole is to be seen as being somewhat greedy of spirit. This is a problem for small business owners. I regularly spend half a million dollars a year on games, and another half a million on labor, utilities, rent and other garbage. I am a rich man by individual standards, while a poor man by business standards. Surely I can be squeezed for a few more dollars, why so much complaining? When I think of putting The Man up against The Wall, I envision a legion of like minded people behind me. What I don't realize, is I am The Man. I will be put against The Wall. Chuang Chou never dreamt of that!

So class, to understand my plight, to understand whether I'm a man or an asshole, I think perhaps you need to grasp the duality of the situation, that both states are potentially true. That my survival depends on stability, that society is increasingly in a state of flux, and that my ability to flit around like a butterfly, hither and thither, is increasingly dependent on the whims of an indifferent populace and their feckless leaders. Also, STEM fields. Business is a good safety.