Someone Stole $10,000

Yesterday someone stole $10,000 from my store bank account. I noticed early in the morning that it happened overnight. I spent the day figuring out the details, closing and re-opening new accounts, and to some extend contacting vendors. It occurred to me this could be a real disaster if I were on an extended trip.

I won't have online access to my accounts for several more days. Until then, items will bounce off the old account and the bank will call me each morning to verify the days transactions. As my bank manager pointed out, I have a strong cash position, which will help. Imagine losing all your money and not being able to process transactions.  It took an hour sitting with the bank manager to close and re-open the various accounts, but there will be many hours of work to follow.

What Happened?

To be clear, it was not an employee. I think it was professional criminals. Whomever did this had my banking information and was able to log into my online banking or otherwise see my account online. Nobody but me has this. I am assuming my account password was hacked. 

How do I know this? Test transactions from another bank preceded the withdrawal the day before. This is when an institution sends a couple small withdrawals from your account and then sends a total of that amount back as a deposit. If you didn't do this, it's a warning you're about to be in trouble. Contact your bank immediately. You had to be able to see these micro transactions on my account to be verify them with the other institution, and since it happened within a day, it meant they had online banking access, and not a paper copy of my bank statement.

That other institution where the money was sent was Capital One. I happen to have a Capital One credit card, so I called them as a customer and learned more than you probably would otherwise. My money was being transferred to a business checking account that had been opened ten years previously, probably some abandoned account. The name on that account was not mine. When I asked for more information, that's when they informed me I had reached the end of our conversation. How did they know I wasn't trying to hack that account?

Capital One sent me back to my bank, who had me fill out a Written Statement of Unauthorized Debit. All of this, the withdrawal, phone calls, and reporting to my bank, happened within a couple hours on the same day. This morning I noticed the $10,000 withdrawal was temporarily removed while they investigated. I am probably fine. If $10,000 had been shipped to some offshore Nigerian account or business, I assume it would be gone. American bank to American bank? They don't put up with shenanigans.

When my online banking is re-established, I'll have to set up everything again. It turns out of the 50 or so online payees, only 14 need to be re-added.  There's an element of clean up.  

What Could I Have Done Different?

Account information was breached somewhere, but it's clear to me this couldn't have happened without online banking access. Make sure your passwords are extra secure. At this stage, if you can remember a password, it's probably not good enough. Nobody else had access to my account, which was everyones first question. I do not think this was an employee or a vendor, because of the online banking element. 

Are You A Good Person?

"Are you a good person?"

"Hmm, define good."

(sigh) "It's not hard. You actively do good things for people."

"As opposed to not doing harm, which just makes you average."

"Correct."

"No, I think I'm kind of an asshole. I don't actively do good. I know the difference though. I admire those who do good. I'm stuck in my own nonsense."

"What about the good you do for your community? What about employees you pay and treat well? What about your happy customers who you bring joy through entertainment? What about your family? You have a positive effect on the people around you."

"Well, that gets down to my definition of good, which I think is about intention."

"You don't intend to do good?"

"No, I do what's right. I do what makes me happy, which is what I think is right. I don't tend to think about doing good. I give a small amount to charity and community causes, but not as much as I could. I could do a lot more and I don't. Which is why I'm a bit of an asshole, because again, I know the difference."

"But you're doing good nonetheless."

"It's a Confucian good, as opposed to a Buddhist good."

"I think even the Buddhists would argue with you."

"Buddhists love to argue."

"I've noticed."

Nimble Processes

When you first start out, you have things you want to do and you do them. You sell Magic singles with your arcane knowledge. You hire and fire people on your own, using your gut. You buy from suppliers requiring unique product knowledge, like comics or Warhammer. As your operation grows, you hire people, and you begin to be concerned about continuity. Perhaps you want vacations. Perhaps you want to retire one day. Your thought processes change. There are five elements to any new initiative that can result in success or may tank a project before it even starts:

1. Ubiquity: How can I make this process work for anyone on staff?
2. Training: How can I create a training regimen to hand off this process for when staff inevitably change roles?
3. Documentation: How can I document this process in a way that creates institutional knowledge?
4. Continuity: How can I inject future proofing into my documentation so this process is dynamic?
5. Validation: How can I create checks and balances to make sure this process is being performed properly and profitably?

These are natural questions, not some clever scheme I've come up with. As you grow, you will want to run every new process through this regimen. If any of these five elements are lacking, you will own this process. You will be needed forever, until you die or resolve the element. If you're a small store owner with few or no staff, you might be laughing right now.

A small store is nimble and quick. You might survive entirely, whether you understand it or not, based on crumbs, working on projects that the big store can't crack with their five elements. I compete with Amazon because I run a successful brick and mortar store and Amazon can't, based on their needs. My competitor competes with me because there are things I won't do because I can't get my five elements in line for an initiative (like running Yugioh events). If my competitor isn't careful, someone might step in and do the same to them. But the reality is, you probably want this.

You want to get to the level in which you are big enough to drop processes that no longer work for you. You want to maintain customer service, for sure, but there are going to be new projects you pass on and small elements of your operation that you cease doing, because you can't crack the code. These failures are elements of success, as well as opportunities for competition against you. I think the only mistake is to stop innovating altogether. 

Reconciliation Rituals

This is a "day in the life" post. It's what I do between the time the store closes and the time it opens again. Oh, you thought we were done when the store closes? Not even close. Every store owner has their rituals. These are mine, and they've mostly been unchanged for years. Technology has improved them, but I don't take advantage of every technological leap; I don't sync my POS to my accounting software, for example. My rituals represent a tight degree of control of inventory and money. This is by no means the most efficient way of doing things, so as always, it's what I do, not necessarily what I recommend.

We begin (it never really ends) when the store closes at ten o'clock. It may not actually close until later than that, as late as eleven on Fridays. I am getting old and I would prefer to be asleep by then, but I always try to stay up for closing. On weekends we close earlier, but that will probably change soon.

Upon closing, I look at the sales report. I often look at it throughout the day, but if I've been busy, I look at it now. Every sold item has a re-order threshold. That number is dynamic and changes often. Now is when I change it, based on past performance and a bunch of subjective factors. I could change this number when I create purchase orders for restocks, but it's better if I do it now, since it's on my mind. Often there are several hundred lines of sold items in a day, and if I don't have the time, I'll focus on big ticket items. I might say anything over $50 gets a look. A store makes money in the buying, more than the selling, and this activity links directly to buying.

Staff run an end of day report. They cc me a copy, which includes the cash deposits and an explanation for any discrepancies. Sometimes the explanation is "I don't know why we're up $20." My manager then investigates and emails me back with an explanation the next day. I don't ask him to do this, it just happens. This is a clear chain of responsibility and it took years to figure this out. I enter the cash deposit manually into Quickbooks, along with the amount of credit card transactions from an integrated report. I might also need to move money manually from Paypal. Stupid Paypal. Dude can send a car into space, but couldn't code nightly deposits.

If it's a particular day, or if sales are crazy, I might decide to place an order or two at ten or eleven at night. Yes, I'm tired, but I want to get a head start. If I know I'll be busy, because I game every Sunday, for example, I'll start placing orders earlier, like on Saturday. Rushing orders is bad (although being tired is bad too), and it's better to take my time on Saturday and miss some sold Sunday items, rather than feel the stress of the Monday morning rush. Mondays used to be an orders only day, but I now prefer to take Mondays off. Of course, Mondays are when sales reps want to inundate me with stuff, which I'll get to later.

The next morning we open at 11am, but I'm usually up with the sun. I check various POS reports and log into my bank to make sure everything checks out. Usually the cash deposits from the night before aren't recorded yet, but I'll double check the deposit from the day before that. I like to manually reconcile all deposits and all debits at this time. This helps me spot errors, maintain cash flow and reassures me things are fine. I have spent years with a few days of cash flow, so at some times this has been mandatory. Nowadays I like to maintain six figures amongst the accounts, thanks partially to our government loan. Baller.

I am happy when: The money is where it's supposed to be. The stock is set to order the proper amounts. Orders are placed. I can now go out and explore the world, at least until lunch time. What happens next is a chaotic mess. Distributors and suppliers have sent emails, since I won't answer my phone. There are new releases, questions to be answered, pre-orders to be placed. Invoices begin peppering my inbox and don't let up until late at night. Alliance orders notoriously show up around 10pm, and I'll reconcile them upon arrival, because I'm foolish like this. Asmodee orders need to be scraped from their website to obtain tracking numbers. All of these invoices require manual or some sort of automated import of new items. All require me to find photos and descriptions for our online store, that only accounts for 10% of our sales.

My goal of traveling six months out of the year in Mexico is to work from around sunrise to lunch time and have the rest of my day free to explore. Let's call it 20 hours a week, but I bet I can get that number down. This will require me to ignore a lot of nonsense until the following morning. This is an interrupt driven field, and some folks, like ACD and Games Workshop, even send me work to do on Saturdays. The people that set up those Saturday tasks certainly aren't awake when they're assigned. Getting my hours down will require me to streamline my rituals, without sacrificing fidelity. It may require some delegation, but working from home now, I don't see anything in particular that needs delegating. I have traveled for several months with a manager completely in control of the business, spending an hour a day derping around with emails and such. I know that can be done too, but I like the control I have now.

Inventory Sizing

This is a wonky inventory article you should probably skip, unless you're curious how I'm restocking inventory. It's one of those things I'm writing to get processes straight in my own head, more than to instruct others.

I doubled my inventory (and then some) over the last two years. The goal was to both stock up for potential outages and attempt to meet increased demand, which seemed limitless. I had hopes of establishing a baseline for a new normal. I really just wanted normal sales with double the inventory. This worked and our sales were stratospheric in 2021, and up 28% in 2022. This is typical in the trade, I think. The ratios I use for my stable inventory are different now, and that's what I wanted to write about. What did I do then, what do I do now.

Why am I stocking lower? A few reason: 

• I'm less concerned about outages. Product is certainly late, but it's now a few weeks late rather than a few months. Stock outages, like COVID, have moved to the endemic phase. It's just there all the time. Deal with it.
• I've learned the limits of demand. I stocked way up on everything as a means of somewhat blind, yet historically informed inventory growth, and have organically drawn inventory down as product sold. My inventory, when I could get it, was functionally limitless in 2021. I got a really good glimpse of demand. That glimpse was invaluable, even if it was a snapshot in time.
• Dead Stock. I want to emphasize that this method was successful in that it didn't result in huge gluts of dead inventory. 2020 was the year of dead stock, with months of the store being closed, but 2021 was my most efficient year in history. We did not start 2021 with dead 2020 stock. That was gone.
• Budget. We're no longer swinging for the fence, attempting to survive by pulling the inventory lever as hard as possible. I have enough money in the bank to pay off my EIDL loan, but I'm still using it as a backstop. The goal is to pay that debt next year, and I can't do that by spending the rest of that money. We're back to a sustainable inventory budget.

The ratio! Right, that. The ratio I used to expand inventory rapidly was to divide my annual sales by my turn rate, which was six. The image below is from Top Loader sales. If I were to bump up my inventory for the apocalypse, or simply the need for rapid inventory expansion, I would divide my annual sales of 191 by 6, and set my restock to 32. Now, carrying 32 top loaders is probably not enough for top loaders, which are in short supply, but you get the idea. 

32 top loaders, a somewhat arbitrary number, should satisfy demand for about six weeks. Sometimes this ratio, with other products, satisfied demand for months. This is a very liberal ratio. It worked well with stock in flux, but it left a lot of slack in the system overall. That was fine then. I would only change this restocking ratio as items sold, so slow selling items weren't changed, and eventually the inventory stabilized at around double the previous amount. I was getting worried there for a minute, let me tell you. Will this ever end? If I had an extra $100K or so, perhaps I would stick with the original ratio.

I also clearanced items at a very liberal six months of low activity. Inventory is about opportunity cost. If you have all the money in the world, as in all the inventory I could possibly want to buy, there is no opportunity cost. Clearance sales are then about space and a clear sales channel, rather than recovering inventory dollars. My store is completely full, so space is now an issue.

The new ratio was implemented to "right size" inventory to normal levels. I decided on a 30 day supply. I check every item after a sale and tweak it. That's right, every sale in the store is evaluated. Some might find this tedious, I just consider it part of the job. This 30 day supply is a much smaller number than annual sales divided by turns. It also has the advantage of being in line with distributor terms. 

The goal, not for the first time, is to sell this stuff before the bill is due. The top loader example would have me stock only 23 top loaders at any given time. That's 28% less stock, which might not seem like a huge difference, but this draw down helped "right size" the inventory without resulting in outages. It is also helping me get my budget back on track. 

Exceptions: There are times I know this is going a bit lean, especially with slower selling items. An RPG book might have sold 18 copies in the last year but only 2 copy in the last month. Do you stock 3 copies like the expansion example (18x6) or 2 copies (2 sales in the last month)? If it's D&D and you don't want to ever be out of a title, perhaps 3. If that item is not part of a strategy, perhaps 2. I like to identify leaders in each segment and treat them more liberally than everyone else: D&D, 40K, Magic, and ugh, core Asmodee.

Disclaimer: This is what I do and not what I'm recommending. Inventory is part art and part science, but even the science reeks of art. There are always exceptions with inventory, subjective decisions related to your expectations of future sales and future availability. There are inventory coherency issues to consider. There are times you're actively stocking up or slimming down a line. My formulas are not something you could plug into a spreadsheet, they're a baseline understanding. You wouldn't hand this to a young buyer and say, do this. There's a ton of institutional knowledge behind it, and quite a lot of handwavium.