Where Have My Profits Gone?
( Originally Published 1912 )
Sooner or later every business man takes his pencil and tries to find out why he is not making more money. He knows the business that he is doing. He believes that he is running that business care-fully. He thinks that his employees are honest. Although he realizes that competition is sharp and that conditions may not be as favorable as he would wish, yet he sees no reason for his profits being so small. He expected them to be larger. He cannot understand where they have gone.
So he goes to figuring. He figures on the total amount of his business. He figures what the aver-age profit ought to be in his kind of business. He totals up his fixed charges. He then adds up all his bills to find out what he has paid for during the year. He subtracts that from the total amount of money that he has taken in, and finds that the balance is not at all the same as the theoretical percentage of profits that he expected to get. What is the trouble? He is puzzled.
Figuring Another Way
Then he goes over it again in another way, and again finds a discrepancy. There is always a difference between the profits which he thinks he ought to have and the profits which he actually gets.
Some men simply scratch their heads and wonder where the difference in profits has gone. Other men get ugly and try to "take it out" on their employees. Still another kind of man says, "Ah, I don't believe it," and lets it go at that. But the business man who really wants to grow to be a better and a bigger success will look around for ways of finding out what the actual facts are, and what has caused the loss of his profits.
The average small business man is quite willing to believe what he reads in his newspaper, when the attorney, Mr. Brandeis, states that the Railroads of America are wasting one million dollars a day through inefficient services. He is also quite willing to believe the New England Senator when he says that the Government also is losing three hundred million dollars a year by its out-of-date methods of handling its business, together with its losses from those who defraud it. He is willing to believe that the Trusts waste money, that the State Government wastes money, and that City and County administrations waste money. But he does not bring the mat-ter home to himself. He is like that class of people who enjoy hearing a "fire and brimstone" sermon, because they think that the preacher does not mean themselves.
In the first place let us say that a high official in one of the biggest cash retail stores in America recently stated that his firm considered itself fortunate if it did not lose, through dishonesty alone, more than two hundred thousand dollars per year. Since its total sales are about ten million dollars per year, this means that it is robbed, in one way or another, of two per cent of its gross sales.
If the small retailer could see his business as others see it, if he could catch the scientific efficiency spirit of the times, if he were truly ambitious to succeed, if he were sincerely anxious to have the most prosperous store in his locality, if he were deter-mined to make such a positive success that he would step up into higher and bigger and more profitable fields of action, he would immediately get rid of his complacency, get rid of his self-satisfaction, get rid of his pride in his superiority, and buckle right down to the task of finding out where his profits are going.
Take some business which is not retail. For ex-ample take printing. Here is a business which some authorities state is the seventh in magnitude of all industries in New York State, and eleventh in magnitude in the whole United States. Yet this same industry has a financial rating so low as to be startling.
Why is this? The answer is that printers as a class do not know how to figure their own costs of doing business. When their business is rushed they charge all they can for their work. When business is slack they go out and solicit trade at any price that they can get. They often make the mistake of figuring only the costs of the paper, press work, ink and binding. They think that when they have added a small profit to the above "costs," they are then not losing money. They do not add to the cost of paper, press work, ink and binding, their rent, light, power, general office expenses, solicitors' wages, repairs and depreciation of machinery, rejected printing (because of mistakes) and percent-age of losses through failure to collect payment for printing completed. Until they have added all of these to the costs of paper, press work, ink, folding, if any, binding and trimming, they have not covered their costs. If they do printing for anything less than a figure which will cover all of these incidental and indirect and real costs, they are selling their printing at an actual loss. That is why the whole printing industry has such a poor financial rating. That is why so many printers fail. That is where their profits go.
The profits of the grocer and the general store are lost in forgotten charges, disputed accounts, errors of employees, thefts of employees, thefts of customers, liquid packages, lost containers, wasted time, unnecessary labor, petty losses, stock depreciation, lazy clerks, unclean stores, poor collections and dozens of other ways which any storekeeper will readily admit as applied to the retailers in general but will be very slow to admit, if applied to him in particular.
The Hardware Dealer
His profits, from the very nature of his business, go more into forgotten charges and the neglecting to make a correct record of cash sales at the time those sales are made, than in any other one thing. Almost every hardware dealer is practically a retailer to the public and a wholesaler to contractors and all other concerns interested in building construction. In addition to the above he does a great deal of business outside of his store. Consequently if he is the average hardware dealer he "carries his business in his head." That means that a considerable share of his business remains in his head, is never put on his books and is never paid for. "The passing of memory in business transactions" is one of the blessings of modern commercial development. We no longer compliment a man because he can carry his business in his head. We say that such a man is old fashioned; that he is behind the times; that he is subjecting himself to undue strain, and subjecting his clerks to unnecessary and unjust temptation; that he is not getting out of himself or his employees the results in profits to which he is justly entitled.
The General Store
The General Store loses its profits in the same way as both the grocer and the hardware dealer. But in addition it has losses of its own, as described in Chapter X, entitled, "THE GENERAL STORE AND THE GROCER."
Some druggists lose their profits because they keep their "Nose so close to the grindstone" that they do not really know what is going on in their business. They spend money to advertise "Prescriptions a Specialty" without stopping to figure out that, if they take into account the cost of their drugs and chemicals, and the wages of a good prescription clerk and the number of prescriptions such a man can fill in a day, they are losing money on every prescription that they put up. Furthermore, because of the customs of the business, certain drug-gists work their clerks too long hours. The results often are that the clerks are mentally worn out, physically exhausted and sometimes driven to drug habits. Many druggists have no system of handling cash, which is an adequate check on the propensity of dishonest clerks to steal, both cash and valuable goods from stock.
The nature of their business compels them to handle so many different items (in an ordinary drug store about five to six thousand different items; in a prosperous drug store, fourteen to fifteen thousand items) and many of them are so lax in keeping ac-curate records of the amount of each different item in stock at any time, that they never know how much of their stock has been stolen, or how much has been sold or how much is on hand.
Hotel, Restaurant and Cafe
In this line of business profits go in the most unexpected ways. Sometimes the waiters take it, or the steward takes it, or the chef takes it, or the clerk takes it, or the cashier takes it, or the manager takes it.
Sometimes those who sell this line of trade take it. This does not mean that the hotel business is any more subjected to dishonesty than other lines. There are hotels and restaurants and cafes, many of them, that are just as strict and business-like and use just as accurate methods and are just as free from unnecessary losses, as are many other branches of business. The chapter on "Hotels, Cafes and Restaurants" is a further study of this subject.
The bottlers lose kegs, cases, bottles and other containers. That isn't their only loss, but it is a heavy one.
The Clothier and Haberdasher
Many of the clothiers and haberdashers lose goods and money not only through the changing of styles and the depreciation of stock, but because they cling to old, inadequate and inaccurate methods of hand-ling their cash and credits. They also, particularly the clothiers, waste enormous sums of money in forms of advertising which have been proven to be extravagant, unproductive and wasteful.
Any Growing Business
If any retail establishment grows out of the one man stage into the stage where it has four or five, or fifty or sixty, or five hundred or six hundred employees, it will lose more profits than it realizes unless it adopts and enforces a strict adherence to the use of complete and accurate records for every side and phase of its business. In this connection the reader should turn to the chapter on "Big Store Methods."
In various parts of this book we refer to many other ways by which profits are lost. Every different line of business cannot here be taken up separately. If it were done, this book would be an en-cyclopedia and fill a library.