The New Principles In Business
( Originally Published 1912 )
A new principle of business has been discovered. Like most other new things, it is new mostly in its application. It represents a modern development. This development is not an accident. It is the result of constructive leadership.
In the earlier times when business was an affair between man and man, you frequently heard such expressions as these: "He is the soul of honor"; "His word is as good as his bond."
"The Soul of Honor"
As business grew until it was no longer a matter between man and man, but between institutions and organizations, then we began to hear such expressions as "Financially responsible"; "AA1 credit"; "Preferred and common"; "Bonds and dividends." This change represents the change from the individual to the institution. This change came with the growth of organization.
Here is a man who made an enormous success of one line of business. He has made so much money that he wants to invest in some other business. If he was extremely successful, he invested in a dozen other businesses. Now, under such conditions, his only protection was that each of these businesses should be so organized that he would know that his investments would be fairly treated.
It goes without saying that the investor could not be in each business all the time to watch each in-vestment. Therefore, the business in which he in-vested money was so organized that its records could be put before him so that he could know just what was being done.
Now, records could not be put before him if some system had not been devised for keeping records. No adequate system of keeping records could be devised unless a record was kept of each separate transaction. As each transaction is made, the record is written. That record goes with other records like it. The various records are classified and summarized. The summaries are then analyzed and grouped. The groups are then summarized and put in their proper columns.
When the investor or capitalist or director, or stockholder, comes to his quarterly or annual meeting, he glances over these various columns, and approves or disapproves by his vote.
Man is an organizer. Formerly he organized holy pilgrimages. Then he organized crusades. After that he organized wars of conquest. When wars grew unpopular, he organized business.
The Desire to Expand
Let us see how this works out in a specific case. Go back 50 years. Here is a merchant. He has a little store. He is a planner. He dreams of being a merchant prince. He knows that his dream will never come true if he tries to do the work himself. He is not lazy; far from it. He works night and day, but not with his hands. He realizes that others must do the work for him while he does the thinking.
But, he also knows that he will never be able to think clearly, unless he has all of the facts before him. How can he get those facts before him in such a way that he can plan new ways to enlarge and improve his business?
Used to Distrust Employees
At that time he found men distrusting their employees. The employees sold goods and usually turned the money over to the proprietor. Some-times they kept it. Sometimes, however, they turned it over, then went to the till and took part of it out. Sometimes they sold the goods on credit and forgot to enter the credit. We will not say that the person who bought the goods on credit gave the employee money to forget to enter it.
Sometimes the employee felt that he was under-paid, and so took a certain amount of goods home every week. He took them because he felt that they were his just deserts. Sometimes there was a sick wife, or sick children at home, doctor's bills to be paid, medicine purchased, operations undergone. The regular wages were not sufficient. So, enough money, and sometimes too much, was obtained in the easiest way to cover these extra burdens.
The merchant knew all of that. He, himself, had been a clerk. He also knew that sometimes the clerks take the money from the proprietor, and sometimes they take it from the customers. He looked around in the business world, and he often saw the merchants themselves taking it in question-able ways from their own customers. Possibly he himself remembered things which were not conducive to pride and self-laudation.
Knowing vs. Distrusting
So he asked himself—"How can I know exactly what my employees are doing?"
He kept asking himself this question, until one day a man came to him with a queer-looking little book with a piece of carbon paper in it and a tissue paper under the carbon.
The merchant thought to himself—" If I give each one of my clerks one of those books, and request him to write down every sale that he makes, and give to the purchaser this first sheet of paper, and keep in the book the copy sheet, then the books containing the tissue sheets can be brought to me regularly, and I can figure up just what each clerk has done. I believe that my customers will come and tell me if any of the clerks do not make out these slips correctly."
Then the merchant said to himself—"I will advertise this method, and show my own faith in it by offering to give back the money of any customer who is not satisfied with her purchase. In this way, I may be able to detect something in my store which I now do not know about. The public will have more confidence in my goods and my store. They will feel that they can safely trade here, because they get this `bill of sale,' no matter whether they buy a package of needles, or a silk dress, or the goods to furnish their house. If those goods are not what they expect, they can bring this `bill of sale' back to me, and I will return their money."
Now such a system worked another revelation which was not expected. The employees, before that time, did not have an accurate system with which to work. Hence they were careless, and carelessness weakens moral fibre.
But with an accurate system, the employees began to be careful. They began to take pride in their own dealings, and in the method of doing business which their employer had inaugurated. Institutional pride took hold of them. They had records to keep, which showed just what they did, each day and every day.
Now the merchant himself, when he got hold of this method of keeping a record of each employee's transactions, knew (did not have to guess) just what each employee was doing, and how much that employee was worth to the business.
Educating the Public
Another revolution which the keeping of records works, is very interesting and far-reaching. When the customer finds in every package which she purchases from a retail store, a "Bill of Sale," represented by a sales check, she may throw it away. After a while, however, she begins to save those checks, so that she can keep records of her purchases. It is a very interesting phase of human nature that a development of this kind in the home takes place so universally, no matter where the merchant is, or what kind of a store he runs. Hence, the use of sales checks and the making of accurate records of every business transaction, develops carefulness, accuracy, thriftiness and the keeping of records in the home. It helps to stop reckless buying, extravagance, expenditures beyond means, running into hopeless debt, and all of the other evil practices which go with careless and thoughtless buying.
When sales checks and sales books and manifold forms for keeping records were first manufactured, they were expensive. Their cost and operation amounted to a considerable sum. Nowadays, how-ever, the business of manufacturing books and other materials for keeping records has evolved and developed to such a point, that the expense is such a small item that even the smallest store or the smallest business of any kind cannot afford to run with-out accurate records.
Inviting Loss and Trouble
In fact, every kind of business merely invites trouble, invites losses, invites the squandering of profits, invites errors, collusion and stealing, when it tries to conduct its business without a written record of every transaction. Such records must not only cover transactions with customers, but they also must carefully cover transactions between two stores owned by the same man ; between two departments in the same store; between warehouse and store; between clerk and cashier; between cashier and bookkeeper; between the buying department and the accounting department; between the main offices and branches ; between the selling department and the manufacturing department; between the ac-counting department and the shipping department; in fact, the record must cover every possible step in business, so that there is a continuous written record of everything. This is the only way that loopholes can be plugged up, leaks stopped, controversies pre-vented, and a complete return secured and held for everything connected with the business.
Following the Leader
It is not a necessary part of the above story that that merchant now has 8,000 employees and does a business of nearly $50,000,000 a year. It is, how-ever, interesting to know that every big store in this country now follows this merchant's method. Some even claim that he was not the one to inaugurate it; that they used it before he did. We aren't discussing that point. The point that interests us is, that even the little store—the smallest progressive store nowadays—knows that it, too, should keep a record of every transaction, if it would succeed.
Nor is this knowledge applicable only to retail stores. In every business, every transaction should be made a matter of record, and each party to that transaction should have a record covering his part of the transaction.
The travelling salesman takes an order and sends it to his house, but keeps a carbon copy for himself. The retail merchant, no matter what kind of goods he handles, gives each customer with each purchase, an invoice of the goods purchased; sends a carbon copy to the bookkeeping department through the cashier, if a cash sale, or direct to the accounting department if a charge sale, and keeps a second copy in the sales book. The bottler or the ice cream manufacturer, or oyster shipper, or wholesale dairy-man, or anybody else who sends goods in a container which container has to be returned, also sends to the purchaser a sales slip "Bill of Sale," sends one copy to the office and keeps the other as a memo. to get back the containers. Even the waiter in the restaurant submits to his customers, a "Bill of Sale," showing the various items served and the price of each, so that the diner can look up the items and see if his bill is correct before he pays.
Why, even the modern cemetery is so interested in pleasing its customers and avoiding confusion, that it gives to each purchaser of a lot an original and carbon copy receipt describing the lot purchased, so that there will be two records of that lot in the family possession, inasmuch as there is usually more than one individual interested in the burial plot.
There are sixteen fundamental reasons for the universal adoption of this principle in business :
1. Every purchaser is entitled to a bill of sale of
the goods purchased.
2. Every seller is entitled to a copy of the invoice of the goods sold.
3. Every employee of the buyer or seller has a right to have a record of his own part in the transaction.
4. The giving and taking of such records stops controversy. Controversy is the most costly loss in business.
5. The giving of such a record creates confidence and predisposes to satisfaction in the minds of the purchaser.
6. The making and keeping of accurate records create honesty and loyalty among employees.
7. The presence of such records deters many employees from defrauding, and helps to detect those who do defraud.
8. Such records show an employer the earning power of each employee.
9. Such records permit those who receive goods to check all of the items over carefully so as to prevent short weights and measures and defective goods.
10. The habit of depending on records prevents the serious losses which come through faulty memory, oversight, unintentional errors, carelessness and ignorance.
11. Records avoid loss of time and save unnecessary labor.
12. A record makes possible the carrying out of a definite plan of action in a nation-wide or world-wide organization.
13. Records increase the efficiency of employees, making each feel that his true worth will be known.
14. Records make it feasible for a management to determine what is a fair quota or stint for each employee, thereby stimulating friendly rivalry and competition among employees.
15. Records not only show what has been done, but how much remains to be done to equal the quota or meet the requirements.
16. The keeping of records is a protection to honest employees against dishonest.
Besides these sixteen fundamental reasons, there are many other indirect, contributory reasons. In-deed, it seems almost like wasting time to be arguing this point. It seems as if there could be no business man nowadays who did not realize the importance of an itemized, accurate record of each transaction—not a one-sided record—not a hastily scratched memo., but a record—a real record, in which there are duplicate or triplicate or as many more records as are necessary to satisfy all parties to the transaction.