Hey y’all, its been a while since Ive done one of these. I tend to write these in my free time, and Ive got two young kids so that's been at a bit of a premium and my professional wrestling and rock-climbing addictions have been eating into my blog writing time a bit.
Cashflow and uncertainty
You can go bankrupt running a profitable company. This is a mantra I tell myself almost daily. I also tell this to my team. It probably causes me no small amount of panic attacks, but that’s for my therapist. But its also true. You can run a perfectly profitable business and never lose money on a single project but find yourself caught out owing folks more money than you have. You could have millions of dollars of product sitting in port waiting to come in, you could have a giant kickstarter sitting and waiting to ship you could have one of the biggest hit games on the planet and become insolvent by not managing your cashflow properly. It’s happened in this industry; it will happen again. Companies have closed up shop, companies have had to find emergency investors to buy them out and you even have folks with games in a warehouse and orders to fill that would put them on the right side of red but their warehouse won’t ship the goods due to overdue invoices to the warehouse.
Cashflow, Cashflow, Cashflow
Running a small business is extremely stressful. Thats the one part of my job that people looking to break into the hobby don’t really go in with clear eyes on. Yes, its super fun, I get to make games that bring people joy and I really do like what I do. The people, the conventions, the games, the artistic endeavor of helping to take someone’s idea and bring it to the world. It’s exhilarating, but it’s also work.
The thing that makes any business function (well, outside of startups with access to VC) is cashflow. If you are thinking about starting a business and the idea of spending time staring at spreadsheets and future cash levels does not sound fun, you should run away. If you are running a small business and you are not spending time doing this, congrats on either being independently wealthy or having gotten extremely lucky to this point.
Most of the time when I start my workday it begins in 3 pieces of software – my inventory software, my cashflow software and our accounting software. These are the basic lifeblood of most companies that sell physical goods. What do I own, how is it selling, when will I need more, can I afford to print more, when will I make more money, what do I owe and what am I owed. It all makes for a fairly convoluted math problem where you carefully layer future revenue over future expenses so that you can get a 10,000-yard picture of what your company’s finances will look like over the next few years.
This is where I spend hours and hours daily just staring at this little blue line. Adding in potential print runs, potential new games and watching the little bar move up and down and then deciding if it’s the best use of our money or not. Gauging the risk of the expense versus the potential return. The goal is to keep that little blue line from crossing that dotted line and hoping eventually to increase the value of that dotted line so that your cash reserves grow a bit.
I’ve removed the axis, but the dotted line is my “safety reserve” which is an amount of cash on hand I never want to go below. Zero is some ways below that number and the line is how much money I will have over time. This graph starts in January and extends through the end of the year. This is the lifeblood of our company. The line tends to drop a bit in the early part of the year as we aren’t selling a ton of inventory in the early part of the year, then the line goes up around Christmas when new releases drop, and sales of evergreens ticks up into the holidays. I am missing some fall re-orders I know I will need so that giant stonks line at the end is a bit misleading.
This software basically has all the information for POs that we have received, future sales forecasts, when we owe money for reprints, when we will need more stock of our hits and allows me to make sure we have cash on hand to pay for our print runs. Then we layer in new games – the art, the development cost, the marketing, the payroll, the storage at our warehouse, our shipping and all the other things. As long as you are cautious with your sales forecasts you should be pretty “safe” to continue operations for the year, which is a really good goal.
The oth. software we use tells me what I have, and when I will run out – here is a screenshot of some games we will run out of in September – this tells me what we likely need more of so that we don’t run out of inventory. This software is where we enter any product orders we get, and it links into our shopify accounts to make sure we do not sell more inventory than we have and wind up having to cancel a bunch of orders.
I am not going to show my QuickBooks because it’s boring and it basically just shows who I owe money to and who owes me money and if they are paying on time or not so we can chase them. This is a critical part of the business as well – because all that fancy cashflow work up above falls apart if you are not getting paid on time. This is one of the prime reasons for a safety reserve of cash – sometimes large orders arrive late so you get paid late and sometimes people just do not pay exactly on time and maybe you get paid 2-3 weeks late. Without a safety reserve of capital this could put you out of business.
We are an extremely fortunate company; we have a lot of games that sell extremely well. The Mind, Faraway, Sea Salt and Paper, Castle Combo, Machi Koro, just to name a few. We had more than ten games last year sold north of 20K copies. That’s all really great, but its also a “problem” because the vast majority of our money that comes in goes right back out again into ordering more of that product. It’s a good problem, but its still a problem because if I mismanage the cashflow or spend too much of it on new unproven games I could wind up running out of stock on a sure thing best seller which would be less than optimal.
Uncertainty and the cumulative effect of body blows
Now, it’s about tariffs. I just wanted you to read a bunch of boring stuff first
Yesterday our company got hit with a 10,000-dollar bill for product we ordered in September. This is a product that we don’t have much control over where it’s produced because we aren’t the original publisher of the title. To say this is frustrating is an understatement. This was an unplanned expense, and while not a catastrophically large one it is an expense that was not planned for.
A month ago, we were told all of our goods coming from China would have a 10% tariff. Then days before they went into effect that number doubled. Now we could have a 15% tariff added on top of the current 20% tariff on April 2nd.
If you read everything up above and made it to this point you would know that we have already planned our cashflow out for a year or years. This means I spent an entire week going in and adding a 10% tariff on every single one of our games, adjusting our cashflow, cancelling projects, shifting reprints and making the math all math again.
Then with no warning, it all changed again. Another week of updating cashflow and figuring out what could work for our company this year to help keep that little blue line away from the dotted line while not running out of inventory of our hits and still finding room to publish awesome new games. On April 2nd we will find out if board games are part of the Liberation Day – which would mean more changes in my little blue line, more changes to future orders and more uncertainty. Its exhausting. It will mean some games prices will change – and that may mean lower sales volume. Or we keep the prices where they are and we make less margin, which means my future cash is lower than expected which means I can’t spend as much on new games or reprints or special projects.
This has been a rough 5 years to be in the import/export business. Which is what we are. Yes, we make games, and yes, we bring cool fun experiences to your table, and yes we are artists working to make gorgeous new creative projects to life. But we also are deep down under all that cool fun stuff an import/export business.
We went through covid lockdowns that shuttered ports in China, closed warehouses here, led to some distribution companies not paying for product they already had, and some orders being outright cancelled.
Then on the back of re-opening post covid we got hit with the 2021 shipping crisis where container prices jumped 200-300%. This caused absolute chaos on ye olde cashflowe. The Dinosaur World kickstarter, which raised 7 figures basically broke even. We thought we were going to have healthy positive cashflow from a project that big but with the container prices jumping right as we were trying to get the games out of China it wiped out almost all of the forecasted earnings. Of course, we were still bringing other games in and paying more for those so lots of games became less profitable than we expected, and the blue line crossed the dotted line and it was not super fun.
We got through it, we had a good 2022 and a great 2023 and an EXCELLENT 2024 and it seemed like things had begun to stabilize a bit in our business (there is a giant upheaval in how we sell our games, but that’s a topic for a different day) and now we have a 3rd giant wrench in the spanners in the last 5 years.
Wait, how does this affect me?
Ive somehow avoid math while talking about cashflow for far too long so lets fix that:
How do tariffs tariff? When I import games from China, I pay 20% of the cost of goods as a tariff. So if a title costs me 3 dollars a unit, 60 cents just got added to the cost. So, 3.60 + ocean freight + warehouse storage + design royalties + shipping domestically are my basic “costs” when I sell a game.
When I sell a game, I can expect to get about 40% of SRP. That’s a bit oversimplified (again, that topic for another day) but that’s how wholesale tends to work. So, 24.95*.40 = 9.98. That’s my revenue.
So, on the “old” model my costs would look something like this:
9.98 – 3.00 (printing cost) - .98 (royalty to designer) - 1.00 (ocean freight) - 1.0 (shipping within the US) = 4.00 in profit. The shipping fees here are probably a bit made up but you get the point. We’re spending about 6 dollars to make 4 dollars in profit, a nice tidy made up math 40% profit margin. And that profit pays our rent, our payroll, going to conventions, mailing out replacement parts and a whole lot of other stuff. Now, deduct the tariff from that and the profit is down to 3.40 off a cost of 6.60 a 34% profit margin.
So, what do I do?
Well, I have a few options.
Option 1: Keep my price the same and make less money. This is what we did back in 2021. Its doable if you have cash reserves, you tighten your belt and you make sure the games you are betting on sell out. The easy math up above is for one game, but of course you have to buy whole print runs and there are other things to think of that are much more complicated than this but the long and short of it is you will have less money than you expected. Potentially hundreds of thousands of dollars less. And if you have already committed to spending that money? Well, that blue line is going to cross the dotted line, and you are in trouble.
Option 2: Raise the price. As a very simple course of business, I can raise the price of the game to offset the margin hit. A 20% tariff doesn’t mean a 20% increase in the price of a game – its lower than that. Using our previously oversimplified example if I want to not lose the 60 cents, I would need to raise the price of the game by 1.50. Remember I get 40% of SRP when I sell a game into distribution so 1.50 means I would gain a net of 60 cents and everything would be aces. It’s a little more complicated than that but I’m going to ignore some of the knock-on effects of a price increase just to keep the math simple. So now my 24.95 game is now 26.45 and probably no one really cares that much about a small price hike so maybe I will sell about as much as previously and its ok.
Option 2 is a bit more complicated than that. If you have games at certain large retailers, it can be hard to change the price. It can also be hard to change the price on some large online retailers. It also works better at lower prices and games with healthier margins. One of our games is nearly 19 dollars a copy to print and that means a near 4 dollar increase in the cost of goods which would mean a 10 dollar increase in the price of the game and then your at numbers that probably affect the sales of the game overall.
Wait, these tariffs don’t seem so bad?
I’m explicitly trying to maintain a neutral tone to this blog post. You can probably guess I’m not a huge fan of tariffs and I’m not. My background was working for large multinational financial firms so I’m probably in the group of people that are most skeptical of restrictions on free trade. But yes, a 20% tariff is manageable. It will mean things cost more and added up across all sorts of things that are made not in the US it will affect everyone’s wallet. But as a business I can manage almost anything if I know about it.
What isn’t manageable is the absolute chaotic nature of how these things are being implemented. Tariffs on, tariffs off, extra tariffs, no extra tariffs. 15% increase on April 2nd. Just Kidding, only 15% on some things but we aren’t saying what those things are.
I can manage anything, but I cannot reasonably run a business where I don’t know what the cost of goods is going to be. My little blue line is based on consistency, yes there can be some variance in shipping rates and sales may be a little lower than expected but small changes can be managed.
I ordered games in September of 2024, and it cost me 10,000 USD that we had no way of knowing would happen. The games I am ordering today could cost anything from zero dollars in extra tariffs to ??? and that is what I can’t manage. If tariffs double or triple we could be committed to printing games that are going to cost significantly more than we are anticipating today and there is no real way for me to put that in our cashflow without either being overly cautious (putting in much higher than current tariffs) or very cavalier (assuming no change in tariff). Either option has real consequences for the company.
Why don’t you just make it in America?
The factories don’t really exist for most of the games we make, we often don’t have direct control of where many of our games are produced because we are not the original publisher and are joining larger production runs for 5 or more languages at once, and we sell goods all over the world so solving the US tariff problem is only part of the puzzle. If someone finds a way to make high quality board games in the US for prices that make sense, I will gladly produce the games in the US. It would honestly make my life easier from a shipping logistics standpoint, but I am far too small of a company to move the needle on this. I am but a teapot in a tempest and its going to be someone much larger than me with access to much more capital and wants to run a factory that will figure this out because these are all things I am not.
I think that’s something that gets lost in a lot of this. I didn’t print our games in China because I wanted to print our games in China. I printed our games in China because that’s where the printers largely are. (we do also make games in Europe, but it only makes sense for certain titles and the EU is likely to be hit with tariffs on April 2nd in any case). There are some exceptions to this, but we don’t really make the sort of games that are well suited to the handful of US manufacturers that exist.
So, what now?
Who knows. Certainly not this guy. We don’t really know what the tariffs will do to the economy or consumer confidence or inflation. It could be a disaster, it could be sort of bad it could be middle ok, maybe Im completely wrong and we wind up with a bunch of factories in the US making high quality games at a good price. Economic prognostication is a bit of a crapshoot. I tend to think these things won’t be good for the economy, but stranger things have happened. For me, I’m going to go back to the little blue line and hopefully things settle down so I only need to look at that little blue line every few weeks and not every day. That’s how I actually measure how turbulent things are – how much do I have to care about my cashflow on a daily, weekly or monthly basis. I had just gotten back to it being a couple time a month check-in to make sure reality was matching expectations. Now? Its an obsession I’d rather drop - because watching Will Ospreay hit a Tiger Driver 91 on some poor sap is a substantially more rewarding way to spend my time.
Hell yeah.