I Love Big Government

My brother-in-law is a great guy. He and I are on opposites ends of the political spectrum even though we share the same religious beliefs. He is CEO of a much bigger company than what I have. He has teased me about being a business owner and that I must be changing my views about government and taxes. The truth is that it has done the opposite. From city to county to state to Federal I have found government great to work with and extremely useful.

Let’s start off with the City. We are in Long Beach. I rely on the city for Garbage, Sewage, and Water. The city does offer twice a year pickups of large items. I wish there was a dump or dump drop-off somewhere close. Sometimes I want to get rid of large items. It might stop the random dumps we get behind the complex. This morning someone hid a mattress in the back. They know they are not doing the right thing. Maybe if they had a place to take stuff they wouldn’t do that. As it is we have a toilet, some fencing, and some yard waste. All of this was illegally dumped behind our complex. Eventually the landlord will take care of it and I will get the bill. Generally I am happy with these basic government services.

I also have a business license from the city. I actually have two, which makes no sense to me. I have a license for mailboxes and a separate license for truck rentals (UHaul) I went down to city hall and tried to get an explanation. There was none. It was pay the fee and get the license. So I have two business licenses. I believe I am supposed to have those displayed somewhere. I never have displayed them. In fact I don’t even know where they are.

The reason I went down to city hall was to figure out the UHaul situation. The previous owner had a license for 4 trucks. The license cost is based on the number of trucks. The more trucks I have the more money I can make. I have had as many as 30 trucks back there. The people at city hall were so friendly and generally wanted to help me do what is best for my business. They were humans. I have found this to be true with all of the government agencies I have dealt with. So the first question I had was how do I count the trucks? Is that the maximum number of trucks I can have? The average? They did not know. I heard later that several years ago the city came and had all of the vehicles removed that were parked in the back. That included some UHaul trucks but also an RV and other stuff that was technically illegally parked back there. So I think the number is how many trucks I can have when the city has to followup on a complaint. I got a license for 10. I think next year I may up the number to 20, just to poke my landlord in the eye. That will cost me another $1000 but feels like the right thing.

When I first went down to the city I thought I had to fight to get more trucks allowed. Again I was surprised how much they wanted to help me. They said that there was plenty of space for the trucks and that 10 was not an issue at all. I had also gone down to inquire about adding a sign. We have nothing on the street with our store name on it. The landlord has not been helpful at all. The city gave me some sign companies I could contact. They said that they were generally just worried about sign pollution and the look of the street. That is interesting since there are some parts of Long Beach that are blighted with too many signs. So I do appreciate them wanting to preserve the look of the neighborhood, but wondering why these rules were not being enforced elsewhere in the city.

How happy am I with the city government and services? I would give them an A+. I feel like I am getting my money’s worth and that my investment is partially being protected by them. They are definitely helpful and considerate.

One day I got a County Tax Bill I had no idea what it was for or how it was calculated. So I went down to the county assessor’s office. It was close by so it was an easy trip. The person there gave me a general outline of what they were looking at. All property that is a fixed asset, meaning that the items were not going to be consumed or sold, is taxed on an annual basis. So if I have a million dollar oven then annually I am going to pay $10,000 to the county. They are really interested in the big manufacturers and stores. They are not interested in me. The man at the county office explained that they do not have the man power or interest in determining what my tax bill should be. I estimated that I have $50,000 of property and $50,000 in fixtures. That is what the previous owners had listed. Is that accurate? No. How close? In my accounting (which is not accurate either) I have $12,000 worth of fixed assets. That doesn’t include the lights and other stuff I don’t want to bother counting. So is it worth $50 in tax savings to say I actually have $50,000 total fixed assets instead of $100,000? Probably not. I am good. I don’t want to count all the little stuff like the bathroom etc. So I am good.

But the real point is that the government employees were so helpful in explaining to me what was be evaluated and how important it was. Or in this case how unimportant it was. That has been my universal experience. Maybe I will document some of my interactions with the State and federal government agencies in another post.

The Customer is Always Right?

The Customer is always right. How many times have we heard that? You know that can’t possibly be true. The Customer can’t ALWAYS be right can they?

When I was in training for this franchise I asked the director of marketing why he had got out of his store. He had been an owner previously. He said it was the customers. Customers can be difficult, but it is rare. Out of the 1,000 customers we have each month 1 is the devil. So I like to look at it positively. 1 out of 1,000 is not bad.

The goal is to make money. In order to make money we have to have customers. Yes I am my own boss, but now I have a thousand supervisors making sure I do a good enough job. The best way to attract customers is through current customers. Current customers will be the best advocates of my business if they like coming to the store. They want value and they want to feel good. Not everyone is our customer. Some people who are not our customers come into our shop. We don’t have to treat them well. But they are in disguise sometimes AND they may meet some of our customers outside of the store. So just to be safe it is better to treat everyone as if they were our customer.

One example of someone who is not our customer is someone who thinks we should not charge extra for stamps. We buy stamps from the post office. We pay the same price that everyone else does. We do not get a discount. In fact we order stamps online (just like everyone else can) and the United States Postal Service charges us money for shipping. So we actually pay MORE for our stamps. (Interesting side note we get charged shipping for stamps that we pay money for, but nothing for boxes for which we do not pay for and which are heavier. It doesn’t make sense to me, but I am not running their business). We have had people come in wanting to buy stamps. One lady came in and when she found out that we charge 60 cents (after paying 49 cents) she was angry. She said she was going to report us. We always wonder how to handle a customer like that. Pride says we should make them realize how stupid they are. Our goal is to make people feel good about coming into our store. We try to reply that we wish we could sell them for less, but we can’t. We apologize and give them options for purchasing their stamps across the street at the grocery store or to go to the post office. It is hard, but swallowing our pride is a good thing. I don’t need the approval of people generally but specifically people who are not my customers. They do not make me feel better or worse about myself regardless of what they say.

People don’t know our business. They don’t know how we make money. They may think they have an idea about how it works, but they don’t know. I barely have an idea of how it works and I think about it all the time. Someone who just walks in wanting to buy something doesn’t stand a chance to understand it all.

I had a customer call and want to rent a U-haul truck. When she found out how much it was going to cost her she was stunned. She was sure that there was something wrong with us. “That price is not right” She would say. I don’t know how she came to that conclusion. She expected our price to be $20 or something like that. When our price did not meet her expectations the problem was us. “How can you stay in business charging that much?” It is not this simple, but if we have more customers than trucks then we might not be charging enough.

People do not know shipping. Amazon has taught them it should be free. Obviously shipping is not free, not even for Amazon. This also will cause people to be surprised when their expectations are not aligned with our need to make money.

I was looking at another business to purchase and one of the things I looked at was their yelp review. The customer gave them a bad review. Their main complaint was that they did not like their prices. How does that deserve a bad review. He even tried to show the math and how they were obviously not charging the right amount. It is amazing that customers think they KNOW what the price should be and anything else is a problem with the person setting the price.

One of my favorite stories is about a customer who came in looking to send a fax. He asked what we charged. I said $1.50 per page. He said that it was too much. His friend charges only $1 per page. I said, “Well then I would definitely send your faxes there” This is not our customer. I want them to feel smart. He said, “He keeps messing it up” Now in his mind his friend was charging the right amount and I was the bad guy. Amazing.

We will not discount or put items on sale. It trains the customers to expect things to be on sale. When Christmas is over we put everything away. We will try to give people options that will save them money. For example people often come in with Post Office Flat Rate boxes. We will offer to see if it would be cheaper to send in a padded envelope instead. Or they may ask to send something via FedEx and we will tell them it would be less expensive to use UPS. Those are customer wins.

The one exception we make in discounting is in shipping International. We discount FedEx and DHL to try and encourage customers to use those services. A $400 package to Israel via DHL would be $275 to send it through the post office, but $650 to send it using DHL published rates. We do not want people to use the post office for anything, but especially International packages. Customers don’t realize how much we are discounting, but we will tell them we discount the service to encourage them to not use the post office. A lot still will because they are so much cheaper.

So here are my top 10  customer axioms.

  1. Customers want the prices to meet their unpredictable expectations
  2. Customers care very much that they are getting better pricing than others
    1. There is no relationship between their price and our cost
  3. Customers like exceptional service but do not value the cost of delivering service.
    1. Customers do not calculate the cost of delivering a service when setting their expectation
  4. Customers understand that we need to make a profit.
  5. Customers like it when we don’t make a profit off of them
  6. Customers like discounts
    1. Customers should not be trained to expect discounts
  7. Customers like saving money
  8. Customers save money when they pay less than their expectations
  9. Rarely will customers appreciate being told where they can get your products for less
    1. Their expectation is that if someone else can charge less you should too.
  10. Customers who complain about spending a penny more than expected will complain about a dollar more than expectation. Might as well charge a dollar more.


I spent a long time writing about employees. I got sidetracked and I eventually scrapped the whole thing. Payroll is our biggest operating expense after rent. It should be the highest, but our sales per square foot ($185) is too low. We could double our sales without needing to be in a bigger place.

I thought I knew what it would be like to be an employer. I had been an employee and even a manager. However being an employer is different. I know I said that the employees should be our biggest expense, but they are also our biggest marketing expense. Because it is hard to quantify the employees impact to sales and a lot of the work they do is not with customers they get classified as an operating expense. So if they are the biggest marketing expense in my budget I need to treat them as such.

The temptation is to get the most labor from lowest cost. Part time college students seem like a good match. WRONG! College students might be bright, hard working and fast. They might learn fast and never make a mistake. But they have other goals. Rightly so they should not care whether I am in business next year. Can a part time college student be a great employee? Yes, but they would be the exception.

Minimum wage workers might seem like a good value. NO! If someone is not earning more than minimum wage then I am not doing my job. They should do more than minimum wage work and I should pay them more than minimum wage. I am a liberal but I against minimum wage laws and I disagree with Bill Clinton. We do not have a skills and training gap. We have a wage gap. Every single job that goes unfilled would be filled in a minute if the wage for that job was correct.

An ideal employee would be a clone of my wife Kim. She will talk to people and makes them feel so good about coming in. She is also a woman. This is not popular (or even legal) but it matters what the store looks like and that includes the employees. The number one marketing tool, and this is true for large corporations and small businesses, is the customer. If a customer likes coming into the store and they tell other people about their experience, no marketing can be more effective. So how do you quantify this? You can’t.

When money is tight and you are looking for a way to cut expenses payroll is a nice fat big target. I am not saying never, but would you ever turn out the lights to save money on your utilities? No. People would think you were closed and that would make the situation worse.

One interaction with the employees caught me off guard. I thought that paying the employees would elicit some gratitude. No. Once someone has worked paying them is expected. I am not doing them a favor by paying them.

Ok so here are some details of tools I use with employees. There are more, but I consider these the essentials. There are 2 forms that need to be filled out by employees when you hire them. First there is the W-4. You will need this information anyway if you are using a payroll service. I use
Intuit payroll service

They are cheap about $80 per month and $2 per employee. I like them because of their support. I had some issues because I bought a business and there was some confusion about who the employees worked for. The previous owners did not close their accounts such as the Employee Employment Development Department (EDD). So the EDD wanted to know why the employees taxes weren’t paid. They were so helpful when I went down and spoke to them. This has been my experience with every government agency I have had to talk to. So Intuit has been great. I did two things that made my life easier. 1. I insisted that they all get direct deposit. 2. I decided to pay them once a week. I bounced around with how to do that, but settled on entering their information into the Intuit web interface on Monday for the previous week and they would get their deposits on Wednesday. Now one complaint with the payroll service is that if there is a holiday on Monday they do not get paid until Thursday. I tell them that they get paid on Friday. If their paychecks arrive a day early, yeah for them. Other payroll companies (Wells Fargo, ADP, Paychex) have pitched me on their services, but no one can do it for less and the added benefits are not worth it. I am a small employer (2 fulltime employees).

One of these pitches to try and get my payroll business mentioned workman’s compensation insurance. I had been paying employees for a year and I had no idea how to do workman’s comp insurance. I called Intuit and they hooked me up with a company. I would have preferred if intuit had just handled it. So now the workman’s comp company gets a payroll feed from Intuit and takes the money out of my account. Because my industry is low risk I pay 3% of payroll. Construction companies can pay as much as 25% of payroll.

After the W-4 you will want to get an I9

No one has every asked me to produce this or prove that I have filled this out. I am too small to worry about. But it makes me feel like I am doing the right thing.

Another form that I think I am supposed to fill out is EDD New Employee Form

but I think that Intuit does it. I should check into that sometime.

The last paper that I think should be in your tool box is a release from liability. When you let an employee go you want that to be the end of it. You do not want an employee coming back and claiming that you made them work during lunch or that you made improper advances. Whatever they can come up with even if it is true. You want them to leave and be gone. The California employee release lawyer letter is a general release that says they are releasing you of claims.

You must give them something in exchange and you must give them time to think about it. What you give them in exchange does not have to be anything real valuable. A check for $100 would be enough. I have given 2 weeks worth of pay. If they come back and claim that the law was broken and they were fired for being a male, or Asian, or Mormon. They would have to explain how they could not possibly have known about that before they signed the letter. Now this is California specific. I will also add that courts are not 100% predictable. My experience is that you do the best you can, but there are no guarantees. If you view it as nothing more than a parting gesture to an employee that will now have to find another job then I think giving them something in return for signing this letter should be a normal part of the exit process.

In closing I want to add that as a small business it is easy to get away with stuff that would never happen at a larger company. That can be a good thing. When I was at Bank of America they hurt their business by not letting sales people give out their personal phone numbers. The fear was that the employee could later claimed that they were not paid for hours worked when they answered their phone on their own time. A small business can be more flexible and take a little more risk and out perform larger companies either in service and value or even in price.

Leasing 101

One of the biggest expenses in running a business is rent. I had paid rent before so I thought I knew what I was doing. There are similarities, but there are also significant differences. But first let’s look at the expenses. You have your basic income statement (with my 2015 numbers)

Sales $333,742
Cost of Sales $150,975
Operating Expenses $117,369
Non-Operating Expenses $61,732
Total Expenses $330,076
Total Income $3,665

Now here is the break down of Operating Expenses where I find Rent to be the largest component.

 Operating Expenses
Rent $54,818
Payroll $42,575
Utilities $7,581
Car $5,032
Advertising  $3,172
General Supplies $2,787
Meals and Travel $1,122
Other $277
Total Expenses $117,369

This is not meant to be a financial analytic piece. I am showing these numbers just to show how much rent is compared to other expenses. Rent is huge. Now here are some things I did not know.

I went to the offices of the landlord. I thought it was going to be pretty straight forward. They tell me the rent is x and I sign the lease. The franchise office wanted me to be approved by the landlord. I didn’t understand all of the implications of that. There wasn’t an issue so I didn’t dig into the details. The landlord was a medium size outfit and everyone I met with seemed really nice. I can’t remember the details of what information they wanted from me. I think they checked my credit. I am sure they just wanted to know that I would pay. I signed a lease for 5 years. I didn’t read it then. I was just reading it now. Here is the link for the lease Property Lease

Now I have signed multi-million dollar contracts without reading them. My belief is that the contract is a sign of trust. I want to pay my rent and they want me to pay the rent. If there are “gotchas” in the contract then there is a problem of trust that no contract will solve. Having said that, I did not know what the needs of a store like this would be. I have also done things that are less than trustworthy, relying on the contract to justify my actions.

The first thing that the contract states that I did not understand fully was the payment of triple net charges. This is not universal in all contracts, but it is not unusual either. What this means is that there is some common area maintenance that I have to pay for. These are commonly referred to as CAM charges.


You see this nice guy trimming the trees here? I am paying for that. Of course I like the idea of someone keeping the place nice and me not having to worry about it. When I was “chatting” with the landlords in our initial meeting they said the charges were about $200 – $300 per month. Last month it was $1300. And here is the kicker. First they can do anything they want. Repave the parking lot, sure. Add security guards, yep. Secondly they add 15% on top of whatever the charges are for their administration. No motive to keep those costs down. I am not upset about it, just surprised.

The other charge that is stated in the lease is that I will pay all insurance and taxes on the property. The real problem is that these come in big chunks. They are not spread out over the year. So in August I will get an additional bill for a couple of thousands of dollars. That is why my rent is really about $4500 per month. Could I have negotiated a better deal. I doubt it. So why worry about it.

But there is more. Some of which the Landlord has the advantage and some which I do. Generally I think the landlord just wants his money, does not want to be bothered either by me or any other tenants complaining about me. For example there is a minor part of the lease where if an employee parks in “non designated employee parking” that they can be charged $10 per day. That has never happened. But here are some other things that can be kind of important.

1) The lease does not mention anything about the limit of UHaul trucks I can have. There was an oral agreement that I would have only 4 trucks, because that has been the standard operating of the previous owner. I have 17 trucks and will have as many as 30. The lease very specifically states that no oral agreements are valid. I think where the previous owners ran into problems is that the city of Long Beach charges a yearly business license based on the number of trucks. The first time I renewed that license (which in violation of city code I do not display) I upped the count to 10 trucks. I should have upped it even more this go around, but the cost made me uncomfortable. If I remember right the cost of 10 trucks was $1,000. Next year I am going to up it to 20 trucks. The lease also says that all of the common area is for all. None of the other tenants have claim to any part of the common area. That is a big win for me.

2) The lease says that I am responsible for things like heating and air conditioner. This is where our franchise choked. Our air conditioner went out. The repairmen said that it was over 30 years old and was obviously no long for life. The franchise should have warned me to have it checked and/or had me place in the lease that the landlord would share in the cost. As it stands we are going to have to bite the bullet this summer. That is going to cost us about $5000. Win for the landlord

3) The lease says that I will have insurance. I didn’t know this. I still don’t know what this is exactly. The franchise and the landlord seem to go through their files about once a year and ask for proof of insurance. I don’t have any. It seems they forget after asking and they never bring it up again. That does not motivate me to figure it out, so I still don’t have any.

4) When I moved in Greg hands me the keys to a shed out back. A little ways away from the store actually. It is not in the lease. It is now filled with stuff. I have no idea what the total story with that is. I have the keys so I use it. Since then the grocery outlet store next to us said that they have a lot of storage space that they do not use. So I am not feeling really concerned. If the landlord cracked down and asked us to get our stuff out or pay more I would be in a world of hurt. My sister moved to Australia and moved all of her stuff in there. It is packed. I’ll take a picture some day.

That is about it. Since we have moved in the Arby’s has become a Starbucks. Thank you Landlord. The Fresh and Easy has become a Grocery Outlet. Thanks again. The security guards have reduced the vagrant population and the problems they have caused. thank you. I have a lot of risks and worries. One of them is that the Landlord decides to get rid of me. He has all of the control. I will have to seriously plan for this during our last year of our lease. There are some little things in the lease like I can’t operate a similar business within 3 miles of this store. Why would they have that in there? What if I want to buy the UPS store across the street? What if I want to move the business across the street? Are these things to really worry about? I don’t know. I didn’t know what I didn’t know and I still don’t know.

Some Raw Numbers to Consider

Eric was looking at a similar store to this, wondering if he should buy it and jump in. Can he be successful? What advice would I give to someone trying to get into this particular retail? I would never advise someone to start a pack and ship store from scratch. I am not sure that a ongoing concern is much better. Shipping has shifted away from retail. People can create their own shipping labels. They have access through the internet and a printer at home. In other words there is not an opportunity for growth. Can a retail pack and ship be successful? Yes. Can a retail pack and ship grow? Yes. Let’s look at my numbers. I don’t like looking at months so I am going to look at This year to date (February 22)

2013 2014 2015 2016
Total Sales $33.0 $28.2 $46.2 $49.2

That looks like pretty good growth. I am not going to go into the details of the numbers. I am going to say that revenue is up. I want to break it down by category.

2013 2014 2015 2016
Shipping $15.3 $10.6 $15.4 $19.8
Uhaul $2.1 $2.1 $3.5 $3.5
Mailboxes $3.1 $3.4 $11.7 $9.5
Business Services $4.9 $5.8 $7.1 $6.6
Business Products $4.7 $4.6 $6.2 $5.9
Gifts and Cards $0.9 $1.1 $2.6 $4.2
Total $33.0 $28.2 $46.2 $49.5

Again not digging into the details because that is a rabbit hole and these are the best numbers I have. Shipping is up which is good because it is about 40% of our sales. Gifts are nearly double but they only make up about 10% of our sales. Uhaul is up and even though it is 10% of our sales they are 30% of our gross profit. Mailboxes are critical. They are up about 300% from previous years, but down from last year. Well the reason it is down is because we raised prices last year and we gave everyone a chance to pay at the old rate. So a lot of customers paid for a full year.

I have tried a lot of things, but looking back this is what has worked.

First of all it was easy to increase the Uhaul commissions. It was the first question I asked our Uhaul rep. It is pretty simple. You can’t rent trucks if you do not have them. When I went to sign the lease for the store they had mentioned that they had agreed that the store would have 4 Uhaul trucks. I went back to my lease and there was nothing in the lease about the Uhual trucks. I immediately told the Uhual rep to send me more trucks. I have has as many as 30. Today I have 17. I won’t going in to details about how Uhaul works in this post. I will say that I collected $35K from Uhaul last year. That is 100% profit. There is no cost. If someone steals a Uhaul it is not my problem. I have zero risk. That was an easy win that continues to pay off.

Second thing I did was change how we did gifts. I never planned on being a gift store, although I now find that appealing. My first thought was just gut the store of all the gifts. Then I saw that there was some money to be made. Well if we were going to do gifts we were going to do nice gifts, gifts that made the store look nice. The gifts is another post but let me say that the store looks a lot better and I attribute our gain in shipping to how the store looks. In addition the sales of gifts is now 300% of what it used to be. In terms of cash flow though it is killer. We sold $27,000 worth of gifts making about $13,000. But the fact is that we spent $27,000 in gifts so in terms of cash flow we netted to zero. Yes we have inventory that can turn into cash, but until it does (if ever) it sits there looking pretty, helping us sell more shipping. Again another post for another time.

Third thing I did that attribute to our small success is the change in employees and their attitude. I went and visited a very successful Postal Annex franchise in Portland Oregon. The most important piece of information that I got from him was how important the right employee was. Going back to the belief that word of mouth marketing is the most important then the employees and how they interact with customers is critical. It is better to have an employee that makes mistakes costing me money yet treats customers right than to have an employee that never makes mistakes but makes customers uncomfortable. Brian in Portland said that he used to think that highering college students who were smart and relatively cheap was a smart business move. He now believes that he would rather pay more for an employee who was vested in the success of the business. So someone who wants the job, not someone who will take the job while they look for something better. And pay them so they will want to stay. I think we finally have someone who fits that bill, Christina. I have more to say about employees too. When I first got here they had 3 fulltime employees. I eventually cut all but 1 of them. I then tried a couple of different new employees as we wanted vacations, including Christina during Christmas and the January gift show. The remaining employee is good and detailed and valuable, but she is not the best with customers, which is more important to me. Kim and I are often trying to defend the employee we like the most. We will stay with the two we have for now.

Those are the things that I did that worked. I have done a lot that has NOT worked. That is for another post.

Have you thought of advertising?

People like talking about the business. I attend church with a man who has over the years amassed a large number of fast food restaurants. I have always tried to talk to him, but it was always kind of a light conversation. I never felt like I got good information from him. Similarly my brother in law has always been involved in business but talking to him about it was like speaking a foreign language. Now I feel like I am on the opposite end of those conversations. There are very few people with whom I can have a meaningful conversation. Here is a typical conversation.

“Have you thought about advertising?”
“We primarily try to attract customers through online means it seems to be the most effective”
“I know someone ran an ad in the local newspaper”
“Did they get good results from that”
“I don’t know. Why don’t you try it?”

At this point I have come to realize that they don’t want a conversation or to learn about what I am doing. So I usually try to make them feel good about themselves since I don’t think there is anything for me in the conversation.

“Yeah Maybe I should try that”

So let me talk a little about attracting customers. We had some 15,000 customers last year. We are a retail store. Currently our customers come into the store to buy things. They are best marketing tool. This has been true everywhere I worked. There is no better dollar spent than on making your current customers advocates for you. So before I advertise in the local newspaper I want to make sure that the people walking in the door are happy that they came in.

When I first bought the store and started working I observed some strange behavior. The employees were sometimes rude to customers. For example a customer would come in and want to drop off a box for the postal carrier to pick up. We will not make a penny on that transaction. In fact they are not counted as part of the 15,000 customers we will get. Some of these drop-offs will ask for a receipt or ask us to tape the box for them. The employees had been trained to charge for a receipt and for taping (since we were not making any money from them) But in addition they openly despised the customers. They would say things like, “You know we don’t make any money from this” It struck me as so odd. They were almost telling the customer to take their business somewhere else. I asked around the franchise about this. Now I am new to this business but what I learned is that the retail shipping seems to be dying a slow death. Customers used to bring in a lot of packages but now with the ability for them to purchase their own shipping label online they don’t need us as much. A lot of store owners view these drop-off customers as vultures. Now being new I didn’t feel that animosity. I decided right then and there that we would be glad that anyone came into the store. “Can I give you a receipt?” We want them to be glad they came in. “Here let me tape that label on your box for you. No we don’t charge for that.” They may never come back and spend money with us, but they are not going to discourage anyone else from coming in either.

That was an easy change in policy. We want to help people as much as possible. We want them to be super glad they came in. We want them to tell all of their friends that they like coming to our store.

A discussion for another post is about discounts and promotions and pricing and how it relates to making customers our best advertising. There is a conflict of principles. But that is another discussion for another time.

Now I want to continue on advertising and marketing. Another strategy we have had is to make the store look fantastic. We can always improve that, but we have taken a lot of steps in that direction. I tell people that the gifts in our store are about 10% of our sales and 90% of our marketing. I mean that. I would rather have a good looking display that never sells than an ugly rack of cheap stuff that moves like crazy. I am not a liquor store. If all I was interested in was moving products I would sell cigarettes. There is nothing wrong with owning a liquor store (That’s what we call them here in CA. I found out that in other parts of the country they are more often referred to as convenience stores.) We are not competing with liquor stores.

Now 90% of our marketing is making people glad they came in the store. What about the other 10%. As part of a franchise there is a department that spends money on google adwords and other online endeavors. I don’t know if it is worth my effort trying to understand or influence what they do. I also pay a guy $59 a month to do more online search optimization. Again I have not spent enough time to make sure I am getting what I hope to get from that.

In addition to all of the above I am always on the lookout for where to spend more money on advertising. I tried yelp, which is a great place for people to find us. I asked how much would I have to spend to see a difference. They said $1000 a month. And then I asked how long would I have to do it. They said three months. I spent $3,000 and I did not see the difference. They tried to point out the increase in views. I told them I didn’t care I had to see people in the store. It did not work. I may try it again, but there are other things to try. I tried another online service Yodl. Same results. I tried EDDM (through the post office) nothing. We are taking out a full page ad in our local schools theater program. It only cost us $100. Our offer is that if they bring in the program they will get a free gift. I don’t think we will get a single customer, but we will see.

I get hit up often to try different advertising. I am willing to try almost anything. But I will want to see results. It is important to major in the majors so rather than chasing the last dollar of effectiveness I am going to try and spend more time understanding what we are doing online and what more we can do.

Origins Story #1 How did I get here?

So it might be time for me to revisit how I got here. I was working about 60 miles north of Long Beach for an e-commerce company (we used to call these guys mail-order companies). My mother lives in Long Beach and as we moved out from Arizona we all settled into her house. We were looking for a place closer to where my work was when I called into the office and told my services were no longer needed. You never get an honest answer as to why, so I cut the owner off and just said thanks and that was it. Now I had moved from AZ and even though we were secure in my mother’s house we didn’t know what we were going to do next.

My mother had been using this store called the Postal Annex. She used them to print off her church newsletter because they had the cheapest color copies in town. She had heard that they were selling the store. She suggested I buy the store. Where else would she get her copies if I didn’t buy it. I didn’t know anything about buying a business. I actually had Kim go in and ask them about it. They told here they didn’t know anything about selling a business and that they had contracted a broker. She got the broker’s information and gave it to me. I called him just to check it out. Now this broker was in the business of selling businesses. He didn’t make any money if someone didn’t buy the business. He put me on the train and I never got off.

The first thing the broker got me to do was to give him a check for $5000. His logic was that once I made an offer (with a non-refundable deposit) then I would be in the driver’s seat. This is true. So I gave him the check and offered them their asking price of $89K. They accepted the offer. Supposedly I was now in the driver’s seat. The reality was that the broker was in the driver’s seat. Before I made the offer the only information I had was that their adjusted net was $90K per year. I now know that number is meaningless. It is true that I couldn’t get more information until they had accepted my offer.

As a side note I was not aware of BizBen.com. It is a site where business are listed for sale. In fact this business had been listed there. Here is where you can find similar listings. All of the information there is debatable. What you are getting is the price the owner is asking. Adjusted Net can mean anything from gross profit (sales – sales cost) to actual profit. Most likely it does not include the cost of employees. To assume anything other about that number is worthless. Now I would want to know the price the seller is asking, their gross sales, and their total rental expense. That is not enough information to make a solid decision, but if you know the business a little you can make guesses about the rest. Other than that you make an offer and then dig into the finances.

The first red flag should have been that the current owner did not have good finances. Simple questions like “How much did you pay for shipping last month?” were beyond his comprehension. “I pay the bill when it comes in” was his response. I found out later he paid the bills when he had the money. They were going out of business slowly.

The Postal Annex is a franchise. There is good and bad with that. I gave them $18,000 last year. Did I get that value back? I think so, but that is another discussion. The key is that the government requires certain cooling off periods for signing contracts with franchises. That is a good thing in my value system. I didn’t really understand all of that, but the effect was that the broker told me that some things needed to happen pretty quickly. He was in full control of this process. The franchise had to get me some paperwork and I had to sign that I got the paperwork by a certain date. There were two things the broker was pushing for, first he wanted me to get paperwork done in time to attend the franchise’s training. I couldn’t attend until I had the paperwork for a certain period of time. I hadn’t signed anything except that I had received their paperwork, second the broker was pushing me to get in the store for the December rush. He claimed (not without reason) that December cash flow and profitability was the greatest and that I did not want to miss that but dawdling.

I can’t remember why I agreed, but I paid for and attended the franchise training in San Diego. Now that I have had the store for 2 years I can see that the training was a good thing. In my mind I hadn’t decided to go through with buying the store. I kind of learned about the business that I was getting into, but some things they said I didn’t like and I still don’t follow. For example they recommended that every customer sign a release of liability before we shipped anything for them. I know that the franchise sees all of the bad stuff that happens. I thought it was a real bad customer experience and we probably never do that. Another thing they recommended was that we pay the employees who do notaries a bonus of $2 every time they do a notary. I questioned them why a store owner would do that. They kind of just said that it was customary. Well I have never done it and that is about $5000 in my pocket. There are other things, but that too will be another story.

In short I signed the documents and I never got off the train. We closed the deal and now I own the store. I still feel like it was a good deal, but lets look at the downsides. I lost money the first year and I just made $60k last year. I still live with my kids at my mother’s place. Is this store going to get me out of my mother’s house? Not if I don’t do something drastic. That $60K has to be north of $100k just for me to think it is possible to live here in LA. I like the work, I really do, but it is 13 hours a day 6 days a week.

Here are some intangibles. The store is across the street from the High School where 3 of our kids go to school. After school they come here and hang out in the back with their friends. Priceless. Yesterday Kim and I went and visited a store in Pasadena to see what we liked about what they were doing. In the middle of the day Kim and I were gone for about 5 hours (ok we got lunch and saw a movie too). That was nice. When I taught HS Math for two years I never thought about the fact that I could not just get up and go to the bathroom whenever I wanted to. It never occurred to me. Soon after working in a bank I got up to go to the bathroom and it dawned on me how incredible that was. I don’t appreciate that anymore, but I do remember that moment when it seemed incredible. I am trying to enjoy those moments that are special about owning this store.

How much did you make last year?

I do believe that analytics can get in the way of understanding. After writing that article yesterday I looked at the numbers for the day. Here they are.

Sales: $675
Expenses: $790
Profit: $-115

Would I have made more money if I would have simply been closed for the day. Ignoring the long term affects on the business the simple answer is yes. My employee cost for the day was $215. So I would have made $100 if I would have stayed home and watched TV all day. Well that’s not exactly true, but for the most part it is mostly true. Of course the long term affects would be disastrous. Employees would not want to work here, customers wouldn’t want to come here and then I might as well close the doors for good. The point I am trying to make is that looking too closely at numbers can be a bad thing. That holds true for time periods long and short and details of where money is coming from and where it is going.

This leads me to my next topic. Numbers are not exact. People first want to know if I am profitable and then (if they are brave enough to ask) How much did I make last year. The answer to that question is “around $60,000”  What do you mean around? You ask. That is right. There is no such thing as an exact true answer. I know they are numbers and 1+1=2 but that is not the way accounting and business works. Then if you mix in personal income with all of that it gets even murkier. There is so much gray. In fact there is a lot of gray in running a business. The language of business is not business. The language is a representation of business and does not always represent the business exactly. This is notated in general accounting principles with the general rule of materiality. Now in accounting this means that you should not spend $1000 tracking a $1 item. At least that is generally what it means. I can tell you this. There is no way that IBM knows EXACTLY how many staplers they have on hand and they should not have to know. The other accounting principle that exacerbates this murkiness is the general principle of accrual. This means that expenses should be accounted for in the period that happen and income should be recognized (“Hey I know you”) when earned. Let’s look at my own finances from yesterday. I said the expenses were $790. Part of that is the rent that I pay every month. I “accrue” and expense of $200 per day for rent expense. How accurate is that number? Well it is mostly accurate. I paid $54,418 in rent expense last year. We were open about 310 days last year (no I do not know the exact number). That would mean $176 per day. I decided to “accrue” $200 per day for a couple of reasons. 1. I do not know what my rent expense will be this year. If the landlords decide to repave the parking lot I will have to pay for that. I suspect the number will be larger this year. 2. I like big round numbers because it reminds me that the number is an estimate. 3. I don’t know how many days I will be open this year. I tend to make those decisions at the last minute. I will never be open on a Sunday. July 4th is on a Monday so we will probably be closed that day, but I won’t decide until we are closer to that day. I might be open rather than be closed for 2 days in a row, even if it is just for a couple of hours. So those three factors make my daily expense of $200 an estimate. And that is just one example there are more.

So in conclusion Am I profitable? Yeah I think so. How much do I make? I don’t know about $60,000 per year. Maybe I need to return to the origins of how I got here next time.

Are you profitable?

That is a great question without an answer. Or at least not an real good answer. You would think, hey you got some money and you paid your bills if there is anything left then you are profitable. I don’t want to get to technical, but it is a lot more complicated than that. I didn’t understand the complexity of answering that question before I started. Today is February 17th. Here are my numbers from the beginning of the year, about a month and a half.

Sales: $ 43,253
Expenses: $ 41,743
Profit: $ 1,509

OK so at this very basic level we are profitable. BUT! There is more. Included in the expenses are $3,000 in “distributions” essentially money I paid myself. So I guess we have made $4,500 in a month and a half month. That works out to $36,000 per year or roughly $18 per hour. That is not enough to live in LA. I went back and looked at last year’s numbers for the same time period.

Sales: $ 41,206
Expenses: $ 38,271
Profit: $ 2,934

And I took out $2,151 so you might say that I made $5,000 last year during the same time period. Well that is worrisome. Why am I making less?

I used to work at Hi-Tech and Finance companies. I am too analytical. One thing I preached all the time was analytics was only useful if it helped make a decision. I believe it is important to have the business decision that needs to be made before the analytics are reviewed. I want to make more money. So what am I willing to do about that. I either need more sales or less expenses (or is it fewer expenses?) Sales were a little higher. Do I need more customers? (Advertising/Marketing) Let’s see last year during the time period I had 1,987 customers and this year I had 2,063 customers. So that is improving but only by 3%. Maybe that is where I need to focus. Expenses as a percentage of sales did grow, but I am pretty sure I know why. Last year we raised our rates on our mailboxes and we gave everyone an opportunity to pay as far as a year in advance at the old rate until March. Mailboxes are highly profitable so even though our sales are up our sales of Mailbox service is down.

Mailbox Service Sales
2015: $10,321
2016: $7,997

Now looking at the bigger picture whether the number is $4,500 or $5,000 both numbers are way too low. We are making progress, but I need a much bigger jump in sales, like double. I need to buy out some local competitors. That will have to be another post.

The Start of Small Business Owner

I woke up at 3AM and couldn’t get back to sleep. I started reading things on the net. I was fascinated with book stores and how they were doing. I thought some of the information was good, but incomplete. I thought maybe I could add to what is out there for good. The problem is that it can’t be a single snapshot in time and be complete. Either it will be a look back with all the forgotten details lost and the mistakes whitewashed or it will be without a conclusion or consequence. For example I was reading a blog about how great a new bookstore was with proof that making it as an independent bookstore is viable. Then I went to look for the bookstore online and it was out of business. What happened? Then there was an article by a guy who claimed he was successful but no detailed explanation about how he got there. So here we are a semi-real time probably very boring blog on the yet to be determined successful or failure of a small business.