"DOES MY BUSINESS PAY?"

Daily Telegraph (Napier), Issue 3629, 28 February 1883, Page 4

"DOES MY BUSINESS PAY?"

This is a question -which every busincs 8 man is expected to settle for himself individually. But, while lie is the person most likely to know, it does not follow us a certain consequence that his conclusion is correct. And thus it is that many honest and honorable men discover that their ■businesses are not in the nourishing , position they had believed them to be. From want of a thorough method of testing the}- have arrived at an approximation and have left the rest for actual experience to decide. It is well known to those who give even moderate attention to the matter that, under the system of credit which has so generally obtained throughout this colony, it is quite in order that a business may increase enormously and the profits thereon be decreasing , every year. Andfurthcr, many of our best men know'to their cost —and they have our deep sympathy—that the utmost care is neeesaary to prevent a business in which goods are bought and sold on credit becoming, by virtue of its success, too large and unwieldy to save its owner from ruin in times of depression. The finest system of account keeping may have been accurately and faithfully adhered to. In such cases it is the judgment (wanting the ballast of precaution that is at fault. The liability to errors 'of judgment has unfortunately a deep root inhumanity, and we will not — on this occasion, at any rate—attempt to lay down rules for the prevention of such mistakes. There is another and, probably, a more general class of businesses, which always manage to keep the owners of them comfortably, and never show any signs of over-growth ; and yet their tendency—with great power—is in the direction of ruin to trade generally. To illustrate, we will quote the case of A. B. and for argument's sake call him a draper. He began business on a few pounds, in "Wellington, twenty years ago. His profits being , tolerably large in those days as compared with the price of land, soon enabled him to purchase a site for larger premises, and the building regulations (.if that day favoured Ids erecting a wood and iron structure. He has always paid his house bills at the shop and charged the amount to "expenses"—an account which, by the way, has never appeared in his ledger, lie lias been careful of these and all other expenses, at all times assiduous in business, and has made steady progress —a fact proved from time to time by "taking stock" •which lie has done at least four times during , the twenty years. He further took advantage many years tigo of the low price of land by selecting a nice acre near town for his private house. "When he took stock five years ago he had £0000 worth and his premises were valued at .£'4ooo. His stock book now shows £7500 worth, still with nothing owing , , but the premises, by reason of general depreciation are only worth £3500. His household expenses have averaged £300 per annum. And A. B. says,—""Well that's not so bad considering the times we've had in Wellington the last five years." To show how such a business tends to ruin trade, suppose the case of C. D., who began business on the opposite side of the .street as a draper five years ago with a borrowed capital of £10,000 upon which he had to pay 10 per cent. lie divides it as did A. 8., spending £-1000 on business premises, and £0000 on stock. He has bought and sold on the same tonus as his opponent, and their expenses -with the one exception of interest—have been identical. The same amount of business has been done by each, and their premises and stock are now of the same value. But while A. B. is £1000 better off, G. D. owes besides the original capital, a further sum of (in round numbers) £6000 for he has, like A. 8., paid no interest, the latter being—fortunately for him his own capitalist. Against this further debt of £(JOOO, C. D. can show only an additional £1000 worth of stock, so that he has lost during , the five years £-3000. As a business man A. B. has done exactly the same tiling, the difference being that as a capitalist he has made himself a jiresent of the interest. Had A. B. looked intelligently into his affairs hve years ago and discovered that he was losing interest to the extent of seven or eight hundred a year (the amount his capital would have rcac i: ly realized if invested upon freehold security) besides running the risk of loss by his business, which is worth another two or three hundred, he would have taken his capital out of that line, and his doing so might have enabled CD., by virtue of doing a better business at better prices without any material increase of expenses, to pay off his interest as it came duo, so that his additional stock would be his own. A. B. might have retired from business and its worries on £800 a year, out of which .sum, lie might have saved in the five years something over the thousand pounds he made in his business and have lived in retirement on £GOO a year—twice the amount of his actual expenses : or if he had chosen still to live on the l'3oo he would have been worth at the end of the time at least another £2000. There are many business men in Ncav Zealand in the position of A.B. and there are no doubt too many of C.D.'s class, and in all or nearly all cases it would bo found on examination that this undesirable state of commerce is brought about by inefficient account-keeping. The number of business men Avhose accountkeeping consists of a scries of memoranda called—to the degradation of the genuine •science—" book-keeping " by single entry, is a scandal to intelligence. Every business man should thoroughly understand correct account keeping. If he docs not and keeps his own accounts, nothing but the best of luck can keep him out of the position of A.B. or CD., the former of whom was losing his own money, and the latter that of another; while if he employs a clerk, he runs the additional risk of being robbed barefacedly, without being able to discover the fraud. A.B. did not charge rent amongst his business expenses because the shop was his own, and never thought of interest because he paid none himself, the idea of charging , his own wages for labour and skill being out of the question. He forgot that a stranger would have given him wages, rent, interest and security, while he was cheating , himself out of all four. CD. may have been an honest man imbued witb the idea that business -would improve and ignorant—for want of better account keeping—of the real state of his business. No business can be said to pay the returns of which will not leave a profit after deducting,— (1) wages of employes; (2) cost of goods disposed of, or the material of which they arc made, as the case may be ; (.1) rent of premises, and insurance of same and stock, interest at the rate of 10 per cent on the total capital whether it be his own or borrowed, and all minor trade expenses ; (4) a fair proportion (according to the nature of the business) for depreciation of stock or plant: (-3) wages of principal. After deducting all these a sufficient sum should remain to provide against loss upon future transactions. If this system were fuithf ully carried out many trades that are now overdone would be relieved; but while such lamentable ignorance obtains it is possible and even probable that any number of businesses may go on for years on the principle, and with similar success to that of A. 8., while C D.'s experience will be only too common amongst others. If these remarks upon the necessity of correct accountkeejriiig , as the main spring , of success in any business, should lead some to adopt a sound system we shall be amply repaid.