How To Finance A Business

F I NA NC E A
B U S INE S S
WH ERE AND HOW TO GET FUND S
—H OW TO USE TH E B ANK—PARTN E R
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SHIPS AND STO C K I S SUE S SU C CE SS FR O M
SMALL C AP ITAL F I N A N C I N G IN A
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CR I S IS HAN DLI N G INVE STM ENTS
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— M O N E Y LE AK S AND SAVIN GS
—PLAN N IN G TO MA KE
E N D S ME E T
20 2 P R O VED METHO D S
OF R A I S I N G C A P I T AL
A ND U S ING CRED IT
A S H AW C O M PA N Y
w
C C O NW O K
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HI A G E Y R
A . W W
. SHA O NDO N L
1 91 2
H P 5 51 4
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C O P YR I G HT . 1 9 1 2 . B Y
A . W . S HA W C OM PA NY
C O NT E NT S
PA R T I
E E
WH R TO GO FO R O M NE Y
Where a n d H ow to B orrow
C
C HOOSING SO URCES AND PPRAISING C HANC S
H A PT E R
I A E
FUNDS
To GE T
II WHEN APPL To THE B AN Y To K
III H W T O N E G T IAT E A B AN L A
O O K O N
IV G TT IN G A
E WHERE Y ID B OU UY
V TA ING IN CAPITAL
K
P A R T II
H O W TO S ATISFY TH E LEND ER
Wha t 133 Cr edit ?
VI FINANCING ON REAL AND PERSONAL P OPERT R Y
VII POIN T S THAT W THE BAN ER D C REDI T M N

IN K AN A
VIII H W O BUI LD A REPU TATION T HAT ASSURE S C RE I T

To D
PA R T III
E M E RGEN C Y M E HO D S
T OF FINANCING
Reso urces Tha t Coun t in Tight P l a c es
I$ BU ILDING A BUSINESS ON THREE FI GU RES

$ HA ND LIN G FIN AN CE S IN A PINCH
$ I H W O M AK E A FRES H S TAR T A T ER FAI LU RE
TO F
D N T S IN M NE Y M ATTERS
’
O O u
u wfi fi q 3 £
4 CO NTENTS
PA R T I V
HOW TO MAKE TH E M OS T OF YOUR CAPITAL

Keepin g Mon ey at Work
C
L N NG MEET YOU B LLS
H APTER
$ I II P AN I To R I
$ IV KEE N G E T A MONE BUS

PI $ R Y Y
$ V H AN LIN G R S ER S AND IN E S T
D NTS
E VE V ME
$ VI W TO LOO
HE R E LEA S AND SA IN GS K FO R K V
$ VII C C IN G U AND MA IN G F IN ANCI AL FO ECAS TS

HE K P K R
L IS T O F F I NA N IA LC CH AR TS
I H o w To RAIS E MONE Y
II W ENH USE THETo B ANK
III BU SIN SS FACTO UN ER L IN G SUPPL HOUSE

E RS D Y Y
C E IT R D
FAC O S T HAT STA LISH FINANCIAL CONFIDENC

T R E B E
P ERSONALIT FACTORS UND L IN G CREDIT

Y ER Y
HOW UI LD A CREDIT R UTATI N

TO B EP O
HOW FINANCE EME GENCIES

TO IN R
KEEPING M ON ALANC E EN
T HE EY B E V
G AP IC RECOR FACTO PR FITS

R H D OF RY O
Where an d H ow to B orrow
ONEY b ugh d ld
—o r t h e us e o f
”
mo n ey is
— o t an so
lik fl u u l y If y gi h i i t o u rec o t t t
di hi h abl y t buy m y 41 y mak h
e r or c er n ze
—
o ; a s
t w ou ou t
f paym t y — pu ha wha v
c re c en es o on e e e
l d
en er se c ure o en o u ca n rc se te er
T d o h wv q
o so ,u i p t pu ha i g abili y
o e e r, re res ex er rc s n t .
M y vi i t alway th am ith i q uali y t

M y ma k va y C dit whi h i
on e se r ce s no s e s e e er n
i p i e ts
p aym t y g iv m a diff
or n r ce on e r r re -
c s
th a u a —
. .
e f
ss r n ce o re en ou e e ns ere n t
If y wa t a l a payabl t will ath th

ou n all
o n e a r er a n on c
th p i fy u a mm da i will b high If h
,
t t
availabl m y upp ly i l w if y u l a i v lv
e r ce o o r c co o on e er . e
u u ual ha f l y —mu t pay b

e on e S s o , or o r o n n o es a n
If y ou e t t er. ou
b w m ha y
n s c n ce o o s s, s
o rro d h t i if y v buy
o re t n ou n ee t a s, ou o er
m y y u h ldi g d p iat d ay d ight y u

— t
u d buy y u may b u abl
on e o r o n s e re c e an n a o r
i t at
n t e re s If y r e ou n er o e n e to
m t a vi al a h d ma d
.
,
ee t c s e n .
Fi a i g a bu i m a xp t i buyi g i
lli g i u i g fu d I m a abli hi g di p
n nc n s n e ss e ns e e r n e ss n n , n
se n n s n n s. t e n s e st s n c re t, sto
i g l p h by h u
,
n mi g th
o sse s , c o g h h i n ro u t e nc s e er re s o rc e
ful d maki g b t h d m i t a dy p fi
,
“ ”
n e ss a n n o en s eet n s e ro ts .
M wh fi a en t fa y d p f i al vi
o n n ce s o re , ct o r an ro e ss o n se r ce
wi h u fi t k w h i
t di i xa ly h t e r o wn c o n t ct ; t
h k v t h wh ll fu d d app ly t u h u
s c c ess rs no on e en
c ec o er os e o se n s an o s c so rc es
ff p i ly what t h y d Th y g h b to t e st
m y ma k t wi h a fully p p a d pu ha i g p w
a s o er re c se e n ee . e o e
on e r e t c re re re rc s n o er
an d buy wi h xp f igh p i ly t h fu d i
t e e rt o re s t rec s e o se n s n
am di
o un t a n m whi h h bu i n d te r s c t e s n e ss n ee s.
t h e se o fi erin g s may i n t eres t
C H A PT R E I
Cho o s ing S o urce s a nd A ppra i s ing
C h a nce s t o G e t F und s
AND to m outh financin g recently cau sed the failure
of a large department store in a city o f the middl e
we st The s tore w a s well l o cated and th e capital S houl d
.
have been suffi c ient At the start there w a s little c ompe

.
tition and th e b us ine ss pro spered .
The prosperity h owever Wa s brief The owner o f the

, , .
s t o re c o ncentrated h is attention on se l lin g and buying .
He ignored credit He paid all small bill s up on their

'
pres entati o n at the c a shier s window lar g er bills upon

’
,
receipt of inv o ice He took no measure s t o keep idle

.
funds active ; he did n ot try to establish a reputati o n

among banke rs and moneyed men ; he ado pte d n o pl a n
to equalize h is supply of capital with demand . I
At length the busine ss required a new buildin g The .
younger members o f the firm a dvi sed e stabli shing their

credit and borr owin g the mOn ey they needed A n ew .
competitor had entered the field and w as mak in g exten

sive impr o vem ent s One o f the merchant s s ons exas ’
.
,
p e r a te d by th is m o ve s p o ke
, t o h is father .
“ ” “
S ee here he s aid We re beh ind t im e Tak e
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, . .
,
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the railway s the sk y scrapers a ll the great industrial
w orks for th a t mat t er Co ul d they h a ve b een b uilt up
.
8 ‘
iWHEBE
-
TG G S E OR MONEY
by followin g o ur method ? D o they k eep their ca pital

i dl e while waitin g for it to g ro w ? Why n o t borrow this
money f o r the new building ? We may be obli g ed to
a sk fo r cre d it s ome day t o ca r ry o n o ur bus ine ss It is .
be tter t o es ta bli s h it n o w while we can ”

.
The s enior member o f the firm h owever was o b dur a t e

, , .
He wo uld d o n o thing until he had ac cumul ated a sur plus

s uffi cient t o c over the expens es of the impro vement ,
though he a dmitte d that lack o f spac e w as a handicap .
The first tw o years the firm mana g ed to build U p a

c o ns i derable su rpl us Thi s m oney w as kept in a savings
.
bank d rawing 3 % intere st Th e third year however

, .
, ,
the c ompetition h a d so g r o wn that n o s urplus w a s

earned The fo urth year be g an with a g eneral bus i
.
ness depre ss ion The balance in the b a nk s ank S till

. .
the old p o licy w a s c o ntinued .
Wha t w a s the result ? The o wner o f the busine ss had

neve r be en well kn o wn perso na lly in financial circle s .
I ns te a d o f inspirin g confidence h is plan had had the

,
o pp osite e ffect B usiness houses had concluded that he

.
was o b l ig ed t o pa y ca s h they came to demand ca sh on

—
delivery When the sl ump came the merchant tried to
.
establish cre d it b ut he had waited t oo long He found

,
-
.
himse lf a n ovice in financing He did not kn o w h ow to

.
use t o a d vanta g e the s ecurities he po ss es sed He had .
fo rmed a p oo r reputati o n fo r busine ss acumen and w as

un able to s ecure s uflic ien t credit
‘
Alth o ugh solvent
.
,
the firm w as compelled t o liquidate .
The failure of thi s merchant w a s due l argely to need

l ess i g norance Of financin g He failed ( 1 ) to establi sh
.
credit ; ( 2 ) t o make use of idle fun ds ; ( 3 ) t o provide

fo r a stringency ; ( 4 ) to make the m o st o f h is tangible
a n d intan gible a ss ets and ( 5) t o arran g e to take a d
,
vanta g e o f b us iness opp o rtunitie s .

S O U R CE S OF F U ND S 9
The ucce ss o f your b us ine ss is cl o sely c o nn ecte d with

$
s
your meth od s of financi n g The value of c apita l d c

.
.
pends upo n the us e you make of it Your a bility to .
expand yo ur bu si n e ss t o ta ke advantag e of op portuni

,
—
ties and meet able competition to s ave your busin ess
in time o f financial di stres s $ s l a rgely de pende n t upo m
-
how y o u use your re source s .
In the building the main tenance a n d the expans ion

$
of a bus iness finance is a two edged to ol I n s killful -

.
hands it b ecomes like clever s elling wi se buying or the

, ,
a bility t o han dle employee s a chief factor in the s uc

,
c ess of th e manufacturer the whole sa ler and the man

,
who me as u res dry go ods or weighs sugar for neighbor

hood trad e Awkwardly u sed it undermines the ve ry
.
,
foundation s o f a busine ss ; and failure ma y foll ow fa il

ure until the executive learn s the le sso n o f Whe re to
l o ok for m o ney to suit various needs ; how t o attra c t the
investor and s atis fy the lender ; h ow t o swin g the force
o f h is pe rs o nal ingenuity into the breach when a c ri s i s
develop s a n d how finally to gain a sure pos ition

,
through re cords that foreca st future receip ts a n d ex

p e n d it ur es so that h is bu s ine ss like a well balla
,
s ted s hip -
,
a utomatically maintain s an equilibrium of ca sh supply

and dema n d .
T h e firs t problem in financing a bu sine ss is to g e t the

capital And wherever you may look your cha nce s to
.
s ecure money depend s olel upon the confidence that

y
you can ins pire It is confidence that determines the

.
banker t o gran t you a loan ; confidence that influence s

the s upply hou se credit man to extend you a line of
credit ; confidence that attract s the partner and make s
p o ssible the stock i ssue ; confidence that secure s you
loan s from private invest ors A nalyzed con fidence de
.
,
pends upon the ans wer to the se question s

10 W HERE TO GO F O R MO NEY
Fr om
the p o int o f View o f the lender $ Ca$n y ou a n d
will you p ay b a ck the loan when due ? F ro m the po int
o f Vi ew o f t h e partner o r the invest o r $ Ca n y o u as ,
the chief p ers ona l e lemen t in your pro p osition be relied ,
up o n ab so lutely a n d do e s y o ur b us iness j u dg ment war

,
rant trust ?
Th e fact o rs wh ich d eterm ine th is es sential el ement o f
c o nfidence o r in o ther w o rds th e facto rs which de
, , ,
termine y our chances t o g et capita l a re $ ,
1 Y o ur pers o n a lity
. .
2 Y o ur ass ets
. .
3 Y o ur pr opo sitio n
. .
The Mon ey Va lue f

o P erso n a lity in S ecurin g Ca pt$
One o f the g reate t re o urce ss s is pers onality perso nal

—
p o wer t o in spire c onfidence B y that is meant n o t o nly
.
appearance a n d presence but character and ability

, .
Co mmercial bank ers are a lmos t unanim o u s in c on

s id er in g perso nality a s the greates t of credit fact o rs .
B anks will not deal with any o ne whom they cann o t

tr ust f o r hones ty inte g rity and ability Th e se q u a liti es
,
.
the bank con si ders its mo st important safeguard In .
g atherin g mat e rial f o r it s rep o rts a well kn o wn credit

,
-
reportin g a g ency g r ades credit req uisites like this

—
Ability relatively ess ential .
Integrity ab solutely e ss ential

— .
—
Property not nece ssarily so .
In apprai sing your ch a nce s to get capital therefo re , ,
con sider first the credit value of your perso nality Have .
you a good reputation in vour c ommunity es pecially ,
with bankers and m o neyed men ? If s o you can bor ,
ro w o n it Have you a reputation f or hones ty and abil

.
ity ? A so ap manufacturer w a s o ffered for

S O U R CE S OF F U NDS
‘
11
the name only o f h is —

product your
name h a s value ,
too if it stan ds for the right qu a lities

,
.
Your chan ce s to get capital depend in the s econd ,
place upon y o ur tangible a sset s The confidence which

,
.
really counts with bankers and money lender s is con

fi den c e in y o ur ability a s well a s your hone s t determin a
tion t o pay back a loan when due and this depends ,
to a large extent upon the amount and ch ara cter of

your tangible as set s .
Hi g h g rade real e state is one of the best s ecuritie s

-
you can always obtain a loan upon it Government .

,
s tate ,
municipal a n d s ome public utility bonds are
always accepted You can rai se m o ney on life in sur
.
ance on hous ehold furniture B ut th e value o f your

,
.
a sset s from a loani n g viewpoint depend s upon how

readily they may be converted into ca sh A p atent that .
h as never be en proved a succe ss is o f little value a s col

—
lateral it could not be s old readily S pecial machinery .
is o f little value for the s ame rea s on .
Ho w the S tren g th of a B us in es s P ropo sition Ca n B e
M a de the B a s is fo r S ecurin g Ca pita l
The third factor which determine s your chan ces to

get capital is th e nature of your busine ss propo sition .
Is y o ur enterpri se ba sed up o n a new invention o r an

untried scheme or doe s it invo lve no new p r inciple ?
,
I s the ri sk great ? Do the chance s fo r profit warran t the

r is k ? These are some o f the p o int s which will deter
mine the amount c f capital you can rai se o n your plan .
.
In new enterpri se s wh ich are not entirely ba sed upon

untried schemes the great difficulty come s from the ex
ist in g competition Where the field is covered unle ss
.
,
your pr e posit ion include s a n exclus ive feature which

will overcome the advantage of long establi shment your ,
12 WH E RE TO GO FOR MONEY
chance s fo r ultimate succe ss are con siderably reduced ,
and the capital is corre spondin gly hard to s ecure The .
pr o p os ition s which have the bes t ch a nce t o s ecure back

in g are th o se that s upply a w a nt widely a n d ge n erally
felt .
The old c omplaint It take s m oney t o g et m oney

, ,
“ ”
a nd I never had a cha n ce make up a refrain that
,
f
is sung by a large chor us of failure s B ut money is .
w aiting fo r inve stment The general principle is sound

.
It ca n be r a is ed f or any b usin ess ca p a ble o f c rea tin g
pr o fi t .
The b urden of pro o f h o wever is up on y ou I f y ou

, , .
h ave a pr o po s ition o f merit y o u mu s t sh o w that it h as

,
merit Yo u mu st plan s tudy your bu siness a n d take a n

.
,
a ctive pers o nal part in securin g the c o nfidence that alone
w il l i n sure succe ss .
Wh ile your chance s to o bta in capital d epen d upon

t h e c o nfidence your pers onality your tangible as s ets ,
a n d your propo s iti o n in s pire you must p r esent the se

,
f a ctors in the right way and to the right so urces It .
is here that pers onal re so urcefulne ss b ec o mes a factor

in s ecuring capital .
The bu siness of a small f oundrym a n had n o t pro

g r e ss e d far before large c o mpetitors b r ought pre ss ure to
bear on h is suppliers o f raw material s t o force h im
o ut of the field Prices were raised and his c o st o f pro
.
duction became so high that h is bu sines s exi sten ce w a s

th rea t ened To put h is bus ine ss on an i n depende n t bas is
.
he o rde r ed new machinery depending upon a loan o f,
five hundred dollars t o which the banker had agreed .
A few days after he h a d placed h is order however he , ,
w a s info rm ed that o n account o f a financial flurry h is

banker had been forced to refus e the loan .
The manufacturer return ed to h is office dis c o uraged .

We do n t get the loan he s aid and the payro ll

’
, ,
is about due .
The offi ce conference la sted for s ome time S uddenly .
the g loo m o n the manufacturer s face di sappeared ’

.
“
Here he s aid takin g h is hat we ve got o ur bus i
,
”
,
“
,
’
—
ness at leas t o ur being e stabli shed is an a sset I wo n t .
’
be back until I have raised five hundred dollars .
He went to an ol d manufacturer o f farm implements

who u sed h is product ; s ecured a gen erou s co n trac t and
r eque sted that h is cus tomer adva n ce five hundred dol
lars a s a guaran t ee He pres ented h is prop osition in

.
s uch a wa y that the advance s eemed a ma tte r o f

c ours e ; the O pulent customer signed the check without
question .
When regular methods of r a l smg capit a l fa il the real ,
t es t come s Re s ourcefuln e ss is o n ly another wo rd for

.
—
in sight seei n g exactly what a ssets in any form you h ave
and u sing them to the be st po ss ible advantage .
How Clos e Fin a n cin g tog ether with Go od Ma n a g e

men t B uilt up a S ucces s ful B usin ess
Two printers in a n Iowa town who h a d dec i ded to

take over a plant got together o n e even i n g to figure
o ut how to rais e the nece ssary money Eve ry c on ce iv .
able avenue o f financ i ng their plant w a s di scus sed i te m ,
by item ; material re so urce s loan s and investments

,
.
Fredericks had a hous e and lot wort h three thous and

dollars mo rtgaged for o n e thou sand dollars B arnes
, .
had several influen tial frien ds he thought migh t c o n

s ent t o a loan some s tock in a doub t ful pr e po s it io n a n d
,
h is life in surance Together they had six hun dred dol

.
lars in cash .
The first sugge stion an i ssue o f s tock involved the

, ,
probable interfere n ce o f stockholders and furthe r more ,

14 WHERE TO GO FOR MONEY
they s a w that it wo uld be a s ea sy to s ecure o utright
lenders a s inves tors They coul d get n o initial help
.
from s upply hous e s becaus e the plant w as already

equipped and the owner dema nded ca sh A moneyed .
partner o ffered nearly the s ame obj ection s a s a s tock

issue. Finally they decided that to borrow o n all their
available re sources woul d alm ost finance the enterpri se .
They did this

Fredericks rai sed
On h u d l by
o se a n ot , d m gag o rt 3
h u h ld fi
se c o n e
On o se o e ec t s
B arne s r ai sed
F m f i d p al
ro a r en erso n n o te 8
O h i lif i u a
.
,
on
e
u li d k
n s ns r n ce
O hin s n st e st o c
Two th o usand ei g ht hun dred dollars w as the t ota l

amount they were thus able to rai se They needed three .
th o usand tw o hundred dollars to buy o ut the plant and ,
an additi onal five hun dred d ollars for other expense s .
They wo rked to gether now and fortunately they h a d ,
begun to plan far enough ahead so that there w a s s till

time t o proceed with cauti o n A p a rtner w a s the o nly .
recourse F irs t they canvas s ed among their friends

.
,
.
Thos e wh o had money h owever had already been , ,
drawn upon for l o an s A s a las t resort they adverti sed

.
for an o ther inve stor From among tho se who replied

.
they foun d one ma n who con sented to put $70 0 int o the
bus ine ss and remain a silent partner He had been .
watching the rec o rds o f the pri n t ers and w as sati sfied
that he w a s makin g a good inve stment .
This amoun t rai sed their capital to three th o usand

five hundred dollar s They still needed two hundred
. .
This w a s for a part of the running expen se To cover .
thi s amoun t they s olicited work in advance The owner .
o f the buil di n g where the pl a nt w a s s ituated gave an
o rder fo r work which he accepted in payment o f the
rent and o ther min o r expens e s were met in the s ame

,
way .
Th e ins ight o f the t wo printers in financing un der dif

fi c ul ties s ugge s ts t h e three vital thing s in getting money
for your busines s $ ( 1 ) Apprai sin g without bia s and
listing in order o f preference all th os e re source s per ,
s onal and mater ial ,

upon which you can rai se m oney ;
( )
2 fi n ding the o n e be s t market for each re s ource and
g etting the large s t return fro m it ; ( )
3 makin g every
s ub s equent financial s tep s o bu sines s like and clean cut
- -
a s t o s pell financial pr o gre ss and impr o ved standing in
money market s .
Firs t o f all mus t come the personal apprai s a l of your

res ource s Have you kn own ability a good reputation
.
, ,
a record to s tand upon ? Have you a ssets that insur e

y our ability to pay back what is l o aned y ou ? Have
you a prop os ition that o fi crs a sure chance for profit ,
o r on e in which the chance s for pr o fit warrant the ri s k ?
I n thi s analys i s you will find guidance in s ecuring

money With this start it re main s o nly to s tudy to
.
,
train yo urself in money matters to look a head and to

,
fore see your needs in o rder t o meet m ost financial cri ses
,
s ucce ss fully .
C HA PT R E II
W h en t o A ppl y t o t he B an k
HEN d o es the bank sa y N o ? ‘ ’
Thi s ques tion w a s put to the presiden t o f a

larg e b ank in Chicago He reclin ed in h is chair
. .
“ ”
Never when the bank ca n help it he replied
, , .
The popular ide a that you can get mon ey from th e

ba nk only when you do not need it and that y our
chan ce s of gettin g a loan vary in direct pre po rtion to
your ability t o get along with out it prevails becaus e
th e nature of ba n kin g O peration s is not g enerally under
s t oo d
. I f the b a n ker refu se s accomm o dati o n it is b e ,
cau se h is intere sts demand it The bank s a c ommod a

.
’
tio n is specia l accomm od ation You would not g o t o a n

.
o culi s t fo r an operati o n fo r appendicitis there are

—
time s when t o g o t o the ba nk is equally absurd .
B an kers are no l o nger priva t e money le n ders ris king ,
their pers onal capital upon loan s in which favor plays

a part To u se the words o f the financier quoted abo ve
'
.
,
“
a banker is a merchant ab solutely and precis ely a
,
” “ ”
merchant . The use of money o r credit is a mer , ,
chantable co mmodity The banker buys credit and sell s

.
it at a profit To be succe ssful he mus t keep turning

.
,
over h is stock j us t a s the shoe dealer must turn h is

,
.
The man wh o c ome s for a lo a n is a pro spective buyer .
16
WH E N TO USE THE B AN K 17
Re mem b er , it is
not money that the banke r sel l s ,
but the use o f it Thi s di stinction is important The

. .
banker sells the us e of mon ey in preci sely the sa me

way that a liveryman sell s the use of a horse The first .
question either asks is whether or n ot he is sure o f get

tin g back what he loan s I f you go to a live ry s table .
fo r a hors e to explore an unknown mo untain dis trict ,
full o f dangerou s precipice s Whatever the g lory of the ,
adventure you will be told t o g o el sewhere to procure

,
your moun t If you go to a ban ker with a pre po sit ion

.
involvin g equally unkn own a n d h a zardous steps the a n

s wer will be the s ame .
B a uk d bdyi upi kpa ly Ca

n cr e t ro er pla u bu i ba d i
ha s w elld efi
n ed ce in s ne
s s, h in g ein g u p h ui k h mur
on q c re t n
sec re q c
b a k vi h i d i a d
ss e ts . o rrec t a n
c ella n ee us n
d i n co rre c t
s er c es , a re
s es o f
e re
n k c re
n c te
t , t o g e t er W i t is
L ikewi s e ,
neither a liveryman nor a banker woul d
care to s ell the use of a commodity for a period that
would endanger h is business A l iveryman by loan in g .
a large part o f h is stock f or a l on g time to one perso n
would ri sk bein g un able to meet the regul ar dem a n ds
of h is trade The final re sult would be a loss The
. .
s ituation in a b ank is s imilar except that the necess ity

,
fo r re s trictions o f thi s kind is much greater .
The depo sitors o f a commercial bank have the firs t

claim s upo n it The individuality o f the loans and
.
depo sit s in a bank is cons tantly changing One man s .

’
depo sit is high thi s month a n d he is borrowing nothing ;

next month h is deposit may be low a n d he be a heavy
borrower The banker mus t firs t of all provide for
.
the se shiftin g requirement s o f his many regular cus

t o me r s .
When you go to the bank therefore you mu st be

, ,
able to convince the banker that you can pay back your
l o a n a n d that it will be o uts tandin g only a s hort time
,
.
Yo ur abili ty to do thi s es pecially if y o u are not well

,
known a n d a regular depo sit o r hinges to a lar g e extent

, , ,
upon your quick ass ets .
$ uick a ss ets are tho s e which can be turned into ca sh

in the ordin ary cours e of bus ine ss They include in
.
,
addition to actual ca sh g ood accounts receivable good

, ,
bill s receivable and marketable securitie s held for in

,
ve stmen t which are not a part o f the fixed a ssets To

,
.
the se item s are u sually added inventories $ uick a ssets

.
are tho se for which there is a continual market th e se —

which can be converted into cas h W ithout g reat in cen
ven ien ce at any time .
W hen you go to the bank fo r a loan y o u shoul d have

evidence that your quick a s sets exceed qui ck liabilities .
A s a general rule you sho ul d po ss ess t w o dollars or

,
mo r e o f quick a ssets to on e o f quick liabilitie s The .
ba si s of a bank loan is a volum e of quick a ss ets suffi cient

to ta ke up the l o an and to l ea ve e n oug h s urp lus quick
WHEN TO USE THE B ANK 19
a ssets to p rote ct your busin ess . Th e b a nk in sist s upon

pro t e ct ion fo r i t self a n d yo u .
A m emb er o f a corpo ra t ion th a t h a d j ust c omplet ed

it s fa c t ory o rg a ni z ation w ent t o t h e bank fo r a loan t o
o rg aniz e t h e s a l e s d ep a rt m en t .
H e showe d th e following a sse t s
M a hi y
D awi g
c n er
r n s, e t c
The ban k er g lan ced at the sta t ement .
“
D o yo u know h o w much all th a t is worth from o ur
”
p o in t o f V i e w ? he a sk e d ; j u st t h e j unk valu e o f t h e
”
m a chin ery which is p ra ct ically no t hing
,
.
If th e applica nt fo r t h e lo a n h a d understood t h e n a $
ture o f ban kin g op era t ions h e would h a ve s ough t h is

,
loan from ano ther so urce o r present ed o th er a n d b e tt er

claim s fo r it .
P resen tin g a B usin ess P ropositio n a s a Necessa ry

B a sis for B a n k A ccommoda tio n s
Wh en y o u g o to t h e b a n h f or a l o a n , y ou s h ould h a ve
a p
b us in ess You mu
r op o sitio ns t be.able to sh o w that
the mon ey you need will be so used that it will bring
quick a n d profitable return s Do you wa n t a l e an to
‘
pay other creditors ? to make perma n ent improvemen t s ?

t o su stai n a faili n g bus i n e ss ? Or have you a defini te
propo sition that o ffer s a cha n ce fo r profit a n d will con
vince the ba n ker o f your ability to pay the loan when
due ? Put the se ques tion s to yourself can didly B a se .
your a n swe r s on the b est i n form ation advice a n d state ,
ment s to be had If you want the use of a ban ker s

.
’
mon ey you mu st be able to sh ow that you will get back

,
the money y ou use quickly a n d at a profit It is h is

, .
as surance that h e will g et it back .

20 WHERE TO GO FOR MONE Y
Kee nbus ine ss men d o n ot expect the bank er to fur
n is h any part o f the fixed capit al of an enterpri se That .
is either paid in by the owners or obtained by l o n g time

loans or bond i ss ue s from private investors .
The owner o f a Penn sy lvania stone quarry needed

m o re capital for the period necess ary to put h is bus i
ness on a payin g bas is He went to the bank He had
. .
neither a definite short time pre po sition nor quick

as set s The banker could not s ee that he would be any
.
better able t o pay h is l o an at the end of three months

than at firs t The banker refused the loan He a d
. .
vised h im to put a bo nd issue on his property From .
the sale of the bonds the o wner o f the qua rry obtained
$
funds which relieved h is difficulties L ater the bo n ds .
not s old were depo sited a s bank s ecurity fo r a l o an .
I f the quarry owner had had g reater knowledge o f

bankin g operations he woul d not have applied for the
,
bank s accommodation He w oul d have arranged fo r

’
.
the b o nd issue on h is own initiative In thi s way he .
wo uld not have made evi dent h is financial i g norance .
Yo ur b a n k c r ed it sh o uld b e h e ld in r es er ve as a
res o ur ce f
or t empo ra r y d ema n ds and oppo r tun ities, to
en a b le y ou t o b e for eh a n de d, a b le t o dis coun t b ills and
ta k e a dva n ta g e of ma r k ets o r meet emer g en c ies .
Th e min imum am o un t which is always needed in a

bu s ine ss sh o uld be pr o vided with out dependence upon
bank s ; the temporary requirements a re t h e legitimate
e mpl o yment o f bank fund s .
It is wis e to g o t o the bank

1 . When the loan is for temporary uses a s con
t r a s te d with u se s which inv o lve inve stmen t in fixed im
pr o ve men ts .
2 When y o ur q uick assets are

. suflicien t to warrant
the l oan .
WHEN TO USE THE B AN K 21
3 . When you have a definite bu sines s prop osition

which i n sure s a p ro fit from the m oney you borro w .
If you ca n n o t meet a n y of the s e co n ditio n s it is ad ,
vi sa ble to s eek money from other s ource s .
In small town s where there is strong competiti o n b e

,
tween the banks and where i n tere sts oth er than purely
,
banking i n tere sts such a s building up the community

‘
, ,
can be made factors the rule s are s ometimes stretched

,
o r ignored B ut i n t h e majority of ca se s t e bank s

’
.
h ,
p o h c y i s al s o your policy When bank s are .pers uaded

to grant loan s for other than temporary purpos es a ,
bu sine ss man ri sk s being forced to make an a ssignment

or to go out o f busine ss in order t o mee t s o me small b ut
urgent demand .
H o w to S ecure the B a n k H elp in Furtherin g Your

’
s
B usin ess and Fin a n cia l I n terests

The mo st vital of bank s ervices is thi s of granti n g
loan s B ut there are o th er aid s that the bank o ffers
.
,
and the shrewd bu si ness man will take advantage o f

them The banker is at the financi a l focus of a com
'
mun ity He is in touch with investors He can help

. .
to secure the s upport o f a town for a new indus try .
He c a n advi se on marke ts s ecuritie s and inve stments ,

.
He can help in selling stock s and bond s There is .
hardly a financial que stion upon which he does not give

s ome help .
The banker s intere st s often coincide with yours

’
.
Men skilled in fin ance make a banker a partner They .
con sult with him o n a ll matters of finan cial importa n ce

,
.
They show him all the detail s o f their bu sine ss Thi s .
fran kne ss besides securing h is co n fidence and a cco mmo

,
dation gai n s acces s to the other service s he can o ffer

, , .
An owner o f a chai n o f b anning factorie s w a s s eek

in g a new site in Indiana The ta sk of s ecur ing lan d
.
from the town on the be st te r ms w a s pre pos ed to the

local banker The recommen dation s o f the railroad
.
offi cials were such a s to convince him of the value of

s uch an indu stry to h is locality Through h is e fi e r ts.
the commercial club w a s prevailed upon to s ecure and

donate the nece ssary ground and to provide trackage ,
rights The banker als o u sed h is influence in interest

.
in g the farmers and the company w a s enabled through

,
the medium of the bank to operate with certainty of

an adequate crop Thus the bank s erve s the intere sts of
.
its patron while s erving it s elf al s o .
Wh at the bank can do for it s customers is a s diverse

a s the activities of the bu s ine ss e s it se r ve s It can help .
a lm ost everywhere $ it can advis e safe g uard pro tec t , ,
handle y our depo si ts and by check your payment s and ,
receipt s help rai se money enlarge trade advis e how

, , ,
y o u may decrea s e expen s e and increa s e profits .
In supplying money h owever it h a s a certain well

, ,
defined field of service ; t o rec o gnize thi s increas e s your

fin an cial e ffect ivene ss and c ontributes t o yo ur busine ss
reput a t ion .
G ua rd Y o ur C r e di t
R E DI T i o ft e m o e v a l u bl
s s n r a e a
a et t h
a n c p it a l
ss Th e b u an a . s
i w l d a c p t s t h is t ut h a n d
n e ss or ce r
ba it g a t r a c t ivit ie up n it
se s s re e s o .
C H AP T R E III
H o w t o Nego t i a t e a B a nk Lo a n
I V E hundred thous and dollars w a s recen tly ob

t a in e d o fi h a n d on a promi ss ory note by a large d e
p a r t m e n t s tore t o di s cou n t it s bi l.l s Wh en a half

million dollars is procured a s readily a s thi s there must ,
be g ood rea son s a side from tan gible a ss ets The se are
.
the rea son s a s the ba n k preside n t gave them

,
“
The character o f th e store proprietor is such a s t o
in sp ir e full confidence that the loan would be paid .
“
Analyz ed thi s con fi dence aros e from the followi ng
,
con sideration s
“
Th e st o re had k ept fa i t h with it s c ust omers building ,
up g ood will a s it built up it s sa les .
“
It had put tremend ou s energy in t o selli n g but never ,
had sold un der fal se p r eten se s o r by exaggerated claims .
It employed g oo d buyers and in si sted on a high

s tandard in it s s ale speople .
“
I t s proprietors were alway s open and above board
with me They tol d me every e ssential thi n g they did ;
.
co n sulted me at leas t on ce a mon th and furni shed me

,
with detailed tabulated report s I never h a d occa sion

, .
to suspect them o f a n y mi sstatemen t s o r fal se optimi sm .
“
'
A sure a n d staple market exi sted and e xi sts fo r the
”
st or e s goods
’
.
The ame prin ciple s app ly equally well to a loa n o f
s
one hun dred dollars The most importa n t point in your

.
financial e ffort is therefore to kn ow a n d adapt your

, ,
s elf to thi s b as i s o n which the banker can s afely afford
y o u accommodation It is by know ing the

. ba s i s for
bank loan s by framin g your reques t on this bas i s by
, ,
approximati n g the banker s condition s that you will be ’

,
able to secure loan s and fortify your credit s ta n ding .
In country banks o r small city b ank s the ca shier a n d

the pre sident have charge o f l oa n s In the la r ge city .
banks the great volume o f bus ine ss makes s pecialization

n eces s ary Here you should make your applic a tio n to
.
the o fficial genera lly a vice pre sident who h a s charge

,
-
o f loan s in your particular line .
The firs t necess ity in app lying for a loan is to s ecure

an introduction to the o ffi cial s of the bank City ban k s .
,
a s well a s country banks de s ire t o know their cu stomers ,
intimately The local real e st a te man the facto ry

.
,
owner the contractor merchant and lawyer find it to

, , ,
their intere st t o brin g the bank new cu stomers o f the

right k in d from week t o week Where your reput a .
ti o n is high s eek a bank intr o duction through a frie n d

,
o f financial prominence The confidence o f the ban k in

.
the cus tomer wh o intr o duces you will accrue to your

advantage .
A Michigan ma n went into the paint bus ine ss with

on e great a e
ss t — h is ability He kept a checkin g a c .
count a t the bank but the balan ce w a s u sually down to

,
the va n i shing point and instead of as king for ca sh he

, , ,
felt that he should apologize every time he approached

the teller s win dow ’
.
One day he sa w a chance to make a good profit by

buyin g paint and varn ish on a ris ing market He went .
t o the ba n ker .
NE GOTIATING A L OAN 25
H ow ca n I b o rr o w some mon ey ? he as ked— and

then he felt like runni n g away .
“ ”
O n what security ? inquired the financier .
”
A carlo ad o f pai n t .
The banker elevated h is eyebrows Paint is n t ex .

’
“
a ct ly the kind o f s ecurity a ba n k want s he s ai d S up ,
po s e y ou c ouldn t sell it ? We might have to clos e it

’
”
o ut at a hea vy di s count .
The paint man admitted thi s w a s true B ut he found .
courage to explain h is plans fully .
The banker had been watching thi s y oung man for

s everal month s not becau s e h is bank account w a s small
, ,
but becaus e he had been exhibiti n g unu sual ability a s

a s alesman It is seldom that thes e things e s cape a
.
loc a l banker He con sidered the man s sellin g ability

.
’
really better s ecurity than the st o ck o f paint and he ,
gran ted the accommodation .
Your bes t guarantee o f succe ss in g ettin g a loan a t

'
the ba n k is an earlier success in o ther direction s ; not

necessarily a con spicuous fina n cial achievement but ,
succe ss in at ta inment of tho s e per s onal attribute s that
make character Individual habit s honesty con te mpt

.
, ,
fo r deceit and a faculty o f looking at thi n gs in a true

—
light thes e are the el ement s that build confidence A .
l ook at the pers onal rec o rds in the credit department

file s of a large ban k woul d convince anyo ne o f the credit
value of pe rs onality and character .
How B usin es s Reco rds , a nd P ers on a l Histo ry Ma y

Be M a de F a ctors in S ecurin g B a n k Lo a n s
After character and closely a ssociated with it come

, ,
your bu si n ess record and hi story The banker place s .
e mpha si s upo n your hi story a n d he is entitled t o k n o w
it fully Ha ve yo u always pai d your debt s and d o ne

.
,
26 WH E RE TO GO FOR MONEY
so in a prompt and business like way ? Are your ex -
p ec t a t io n s ba s ed u po n knowledge and intelligent ca l cu
lation o r are they mere gue ss es ? If you are new in

,
the community can y ou show a good record where y ou

,
have lived ? If y ou are new in bu siness have you a ,
clean pers onal record in s omeone s employ ? The m o re ’
promptly and ful ly y ou show up thes e details the

g reater chance y o u have o f obtainin g a loan .
Two concerns applied to the bank for a loan On e .
o f these had a l e an item d iSpr opor t ion a t e to its fi n a n

c ia l res pon s ibility It w a s not accus tomed to clean
.
“
up and carried practically the s ame amount o f loans

continually Thi s con stant p o sition of borrower indi
.
c a t ed a cra mping for capital a fact that put the c on

,
cern at a di s advantage The hi st o ry of the firm w a s so

.
g o od ,
however that the
, bank acc o rded it an exten d ed
line o f credit .
Another firm which h a d g one into bankruptcy pre

sented a s tatement far superior It w a s refu sed a loan
.
fo r a re a s on the oppo site o f that for which the hone st

alth ough strug g ling management w a s granted aecom ,
mo da t ion The personal records of its officials did n ot

.
warrant a l o an .
Wha t the S ta te men t and the A n al ysis o f B usin ess

Mea n to the B a n k
Wh en o r dina ry evi d en ce fail s t o secure a l e an there ,
is o ne argument by which you can compel the bank s

’
attention I t is the analys i s that goe s deep in t o your

.
re source s —a detailed defen s e o f your a ss ets You should .
g o t o the banker certain o f the cond i tion of your bu si

n e ss ; ready t o analy z e y o ur a ss et s and n eed s t o the
la st detail An ana lytical statement is the be st a n d m os t

.
busine ss like pr o of that the l oa n is jus tified

-
.
NE GO TIATIN G A L OAN 27
Th e tatemen t you make should show con spicuously

s ,
h
t e a ss et s that real ly cou n t in making a l e an— the quick
as sets such a s accoun t s receivable ca sh a n d merchan
, ,
dis e Again st thes e you should set o fi your accounts

.
a n d bill s payable Thus you can furnish in bird s eye ’

-
.
,
perspective your situation from a loani n g standpoint

, .
If you expect your banker to grant you a loa n y ou ,
s houl d al s o be open and candid wi th him If you d o .
not care to trus t your ban ker with the details of your
bu sin e ss go to another whom you can trus t The in
,
.
t e r e st s he guard s give him a right to k n ow all the facts

that a ffect your sol vency and he will n o t be sati sfied ,
with gene ralities .
The attempt to kee p the ban ker in the dark about

so me factors of a bu s in es s is mad e even by hone s t bor
rowers They tell the banker what they wi sh were true

.
,
o r what they hope is g oi n g to be true or the y hold b ack ,
s ome fact which they fal sely persuade them selv e s may
, ,
be i rrelevant .
A man went into the offi c e of a New Y ork banker

with a statement which w a s perfectly t r ue a s far a s the
bus in e ss it self went B ut he s uppre ssed the fac t that
.
he personally had borrowed to the lim i t o n h is life

, ,
in sura n ce A s it happe n ed that w a s important a n d it

.
, ,
happe n ed a lso that the check had gone through this

bank and the fact had been noted The loan w a s r e .
fused .
A banker gets to be an expert in detecting thes e r es

e rv a t io n s If some di screpancy d oes not betray thi s
.
kind o f a borrower h is man ner will A n d deception in

,
.
even a minor detail undermi n es confide n ce A banker .
deciding whether or n ot to make a l oa n is like a con

tractor dig g i n g for h a r dpan upon which to rest the
foun dation of a building U ntil he h a s found it h e .
,
28 WHERE TO GO FO R MON E Y
d oesn t kn ow h o w much farther down it is The fact

’
.
a cus to mer conceal s may be trivial but if there is sus ,
p ic io n of co n ce a lme n t the banker, ca n not b e s ure that

h is lo a n is s afe a n d he will not le n d unle s s h e is s ure
, .
On th e ot her hand confidence in spire s co n fiden ce The

, .
man who make s the banker a con sulting partn er in h is

busin ess fi nds him a willing helper at need .
Next to frankne ss in pre sentin g the deta i ls o f your

b usiness comes the exactne ss o f your kn owledge of it .
A man is ge n erally con sidered t o know a bout h is own

bus iness but it is o ft en far from th e ca se La ck o f trade
, .
knowledge may deceive h im on s uch matters a s depre

c ia t ion a n d other technical po in t s ; o r he may be blinded
,
by inhere nt o ptimi sm B ankers are skeptical on thi s

.
p oin t ,
but evidence of thorou g h knowledge will do much
to overcome this skeptici sm and secure confidence .
Moreo ver the indors ement of the concern s paper by

,
’
pro minen t men will often augment its cred it .
A firm of partners w a s accorded a loan a n d at the

s a me time a manufacturing corporation that pre s ented
a b e tter s tatement w a s refu sed The partn e rs had large

.
p e rs o nal es tate s that were brought t o the bank s atten ’
ti o n a s subject to the debts of the fi r m Thus there w a s .
r eall y greater fina n cial backin g than the comp a ny s state

’
ment its el f showed In the other case the director s

.
,
did not indorse the company s paper and the only

‘
’
,
s e curity w a s that actually shown in the stateme n t Had .
the direc t o rs been willing to indors e the co rp o ration s ’
a
p p er it w o uld n o t have been cha l len g ed .
Meetin g the B a n ker

’
s Requiremen ts—Wh a t to Con
sider in A pplyin g f or a Lo a n
’
To n eg o t ia te a l oa n a t th e b a n k , un d er s ta n d th e b a n k s
r e q uir e men ts, a nd th en me e t th em as f or as p o ssi b l e .

NEGOTIATING A L OAN 29
Remember th a t perfect credit condition s are rare but ,
that the bo r r ower who mo st ful ly evide n ces what he h a s ,
who keep s h is record a s clear a s po ss ible and offers

profitable bu si n e ss to the lender h a s the bes t chance to ,
s ecure the ba n k s s ervice

’
.
In applying for a loan you should

1 Get an introduction by a favorably kno wn c us
.
tomer .
2 . Gua r d a g a in s t a l l c o mp ro misin g a pp ea ra n c es . See

that your private and bu siness life are such that they
will creat e a favorable impres sion If you have a repu .
t a t ion for hone sty integrity and ability , d eman d y o ur

,
l oa n on th a t a ss e t — do n ot t ry t o
“
fi x up
”
yo ur
s ta t emen t .
3 . S ubmit
a s tatement of your bu sine ss complete in ,
e ve ry de tail M a ke sur e o f your q uick a sse ts

. .
4 .B e fra n k in y o ur d ea lin g s w ith th e b a n k Do n ot .
withhold fa cts An alyz e your s ituation showing wha t is

.
,
to be done with the loan .
5 S ee th a t y ou k n ow th e fa c ts of y our b us in ess B e
. .
c a reful o f your statemen ts Do not exaggerate . .
6 .Con s ider the credit value o f your bus ine ss reco r d .
If favorable it is an a sset it can be used t o se cure a

— ,
loan .
7 .Get pr ivate i n dors ement o f your company s paper ’
a s a las t re so rt where mon ey mus t be had even tho ugh

‘
the security implie s fi n ancial weakness a n d need fo r

backing .
A NK S b a se c re d it o n t h e a ssur
a n ce t h a t b o r o w e rs c a n pa y o ut
r
of t h e ir q uic k a s se t s .
—Geo M . . Reyn o lds

C H APT R IV E
G e t t ing A id W h e re Yo u B uy
S personality is the prime factor in s ecurin g a loan
from a commercial bank and tangible a ss et s in
b o rrowing fro m a bank doing a general loan busine ss ,
so the co n dition o f your bu s ine ss is the chief facto r in .
o btaining a line of credit from a supply hous e .
When you go to a s upply hou se for credit you are

n o t only a cust omer for credit but you are also a c us
,
tomer for goods The credit man mu st regard sales as

.
well a s credit ri sk The supply hou se is de sirou s of

.
s ellin g a s much good s a s po s s ible To fo llow a policy

.
o f extreme con servati sm w o uld mean the los s of trade .
If you carry o n your bu si n es s in a pro g re ssive manner

and combine with go o d management the degree o f in
t e g r ity nece ssary to warrant s afety the s upply hous e
,
will cons ider thi s suffi cient guara ntee that it w i ll be

paid for the go o ds it s ell s y ou .
The problem of obtaining credit from a supply hous e

is clos ely a ss ociated with the problem s o f bu s ine ss o r
g a n i z a t ion and management . It is nece ss ary to co n s ider
them together Th e experience of a merchant in a small

.
t own illus trates how a ret ail store may be put on a

bas i s to ass ure credit .
‘
Jo hn B lack a dry g oo ds sales man dec ide d to put
, ,
3 0
CREDIT FRO M UP PLY HO U S E S
S 3 1
ten thousand dollar s int o s s ss the dry g oo d bu ine

After .
he had selected h is location the firs t problem wa s the ,
purchas e o f fixture s Next he w a s obliged to place a

.
limit up o n the credit he would extend t o cus tomers .
This w a s a vital problem and on e that would affect the

,
credit stan ding of h is store Deducting t h e a mount tied

.
up indefi n itely in fixtures and in customers cre di ts he ’

,
had left a workin g capital of six thou sand dollars On .
thi s capital he should be able to secure four thous an d

dollar s credit from h is supply house Thi s would enable .
him to carry ten thous and dollars stock A s he could .
turn it three time s a year he w a s in a position to do

,
an annual b us ine ss o f thirty thou sand dollars .
H is expen se s were n o t to be more than twenty per

—
cen t o f the total sa le s six thousand dollars per a n
num or on e th o usan d dollars every sixty days H is
,
.
bills fell due in sixty days On the basi s outlined h is .
bus ine ss w a s con ducted thu s

O g al a h ap al
ri in c s c it S k a id
to c c rr e
F u
ixt
Sal f y ar
es or e
re s
Sal v y x y day
es e er Si t s
D du xp
e dp
ct e al en se s a n erso n
Cu m a u wi hd awal f 60 day
t r s or s
C a h i ludi g p fi
’
st o e rs cco n ts
s nc n ro ts, to
apply a payabl to cc t s . e
C d f m ( hi h la t
W y p v P ih en tr W t
C di f m
c s ro es U
it
°
b b
h i m
re ro 1 o e rs
“
t e te ,
re t ro
John B lack w a s able to e stabli sh a s uccess ful busi

'
nes s He plann ed not only to put h is busine ss on a

.
s ound ba s i s but he co n sidered a l s o h is credi t standing

,
.
He limited h is outl ay fo r fixture s ; he li mited the amount

o f h is account s receivable ; he plan n ed h is bu sine s s and
to ok colle ction precautions s o that he could meet h is

note s when due ; he accepted an amount o f credit well
p roportioned t o h is working capital .
3 2 WHERE TO GO FOR MONEY
As in the ca se o f J ohn B lack your c r edit standin g
,
with the supply hou se a s well a s the sucem s o f your

,
s tore , depends upon the follo w ing fact o rs $

1 S electin g the right l ocati o n
. .
2 Money paid for store fixtur e s

. .
3 L imit placed o n cust o mers accoun t s

’
. .
4 Amoun t o f credit accepted from j obbers

. .
5 Annual turn over

. .
6 Co st o f doing bu sine ss
. .
The extent t o which y ou may us e your s uppliers ’
credit depends upon the nature of your busine ss I n .
s ome ca s e s the supplier m a ke s the retailer h is agent
and dema n d s rem ittance s only as the goods are s old a n d

as the final purchaser s et tles O ther houses require
.
remittance s on the fi rst o f every month or thirty day s

af ter the date of delivery .
S ome supply hou se s e specially new and s mall con

,
c ern s furni s h actual capital in money and in order to

, ,
s ecure trade will o ff er long time credit term s If you .
n eed additional capi t al to s tart or to carry on your
busine ss supply hou se credit o fi e rs great advantages

,
a n d few di sadvantage s It is more ea sily s ecured than

.
mo st other kinds of credit In the cas e o f a stock of

.
g o o ds ,
the payment o f the am o unt is provided for by
the s ale s Unlike the method of taking in capital by
.
an iss ue of st o ck o r by takin g in a moneyed partne r .
this method entail s n o sacrifice o f part manag ement in

th e enterpris e .
With ample credit the advi sability o f accepting a c

,
co mmodation from your supply house depends upon

the amount o f the di scount fo r cas h a n d the value of
the mon ey to you in s ome other inve stment For in .
s tanc e if the di s count is small and the mo n ey market

,
CREDIT FRO M S U PPL Y HO US E S 3 3
high the mo ey you would have to pay in ca sh might

,
n $
earn more in s ixty or ni n ety days than the amount o f

the di scount .
Wh ile there are advantage s in obtaining credit fr o m -
the supply house it often entail s over buyin g P a y ,

-
.
men ts look small at a di sta n ce When credit is extended .
a n d no s acrifice is dema n ded for a lo n g time a retailer ,
is often persuaded to lay in s tock that he will be u n able

“ ”
to s ell a stock that will grow whi skers to use the
, ,
credit man s phras e In the liquidation o f a s tore in

’
.
S ec umi illg p ma d pdi d uppp fy m d mma ufaa i u ha vwhy limapl a fa upply

r n er n en t c re t s o rt ro t he n ct re rs a n d o es ers w ho s
the
y u bu i
an
o
d
rh ugg d f av a p p
sto r
s n es s , a s
e e n
i p
s u on
e re s
o ur
es t e ,
e on
o rs
st r t o n
ro s
t t e er
ec t o f c o n s s t e n
o rt
t
nt
ro fi t s
c to r in
northe rn Illi n oi s in 1 9 1 0 a stock of cap s w a s foun d

, ,
which w a s made expre ssly for the Grant Colfax pre si -
den tial campaign in 1 87 2 .
There is a clo se a n alogy between jobbers credit and ’

3 4 WHERE TO GO FOR MO NE Y
bank credit The s ame g eneral fact o rs o f pers onality
.
,
a sset s a n d busine ss po ss ibilities apply A s in the case .
of a bank loan you should first understand the nature

,
of s upply hous e credit and then meet the requirements .
What the cre dit man want s to know about you is sug
g ted by the chart in thi s chapter
e s .
Remembe r that knowledge is back o f confidence .
Moreover frankness willingness to submit d ifi icult ies a s

, ,
’
they are is on e o f the g reate st factors in securing credit

,
from whatever s ource .
A southern merchant had seen the credit man of hi s

s upply hou se only a few time s He con sidered hims elf
.
an a lmos t entire stranger In the c o urs e o f h is conver

.
s ation he mi sstated s ome fact s He had not gone far

.
,
however before the credit man checked him with an

,
abrupt ges ture .
“
D o you mean t o sa y that y our stock is worth fif ty
thou sa nd dollars ? the credit man a sked .
(l h e s upply h o u s e o fficial then entered into a co m

‘
p l e t e account o f h is pro s pective c us t o mer s hi s tory told ’

,
him when he came to thi s c ountry where he got h is ,
capital h o w many children he had where he lived the

, , ,
locati on and bu siness o f h is relative s the condition and ,
extent of h is st oc k .
The merchant fell back in h is chair He had learned .
the le sson o f mi srepres entati o n befo re a credit man to o ,
l ate .
L ikewis e a s in bank credit the smalle st fact o rs o f

, ,
p er s onality and habits are con s ide red by the credit de

p a r t m e n t of the factory a n d jobbing hou s e .
A dry g oods store in a little town in Nebra ska h a s

been r unning for s everal years At first the proprieto r .
met h is bill s re g ularly Recently however he aske d

.
, ,
f o r a con siderable exten sion of credit It w as gr ante d .

C REDIT FRO M S U PPL Y HO U S E S 3 5
after s ome hesitation This merchant is n ow on the
.
“ ”
keep track li st and a t the bottom o f the card uh
-
, ,
d ern ea t h the s tatement is o n e matter o f fact word which

,
- -
explains the whole ca se

H ow to Use the Credit M a n s S ervice in F in a n cin g
’
Your B us in ess
The credit man is an expert in h is line and that
mean s that in mos t ca ses he is an expert in your line
al so H is value to h is hous e depends largely upon t h e
.
extent of h is kn owledge of the trade he s erve s He .
h a s watched hundred s o f bu s ine ss succe ss e s and failures .
He knows the wh y One credit man s aid that he coul d

.
tell in fifteen minute s what w a s the matter with a lm ost

a y s t o re
n — and it w a s n ot vain bo a sting either .
The credit man is willing t o help you n ot chl y t o ,
finan ce your busine ss but to make it gr ow and pa y

‘
.
,
He require s in return ab solute frankne ss in y our deal

ings with him and your confidence
,
.
A c o untry merchant violated the t 0 great rule s the

credit department recom mended that is he stretched , ,
h is own credit and extended t o o much to h is cus tomers .
One day thi s man B lackwell rushed into the office o f

, ,
the wholesale hous e in who se debt he st ood .
“
The sh erifi? is in po sse ss ion of my s tore $ he s aid
$
.
The credit man kne w that B lackwell s trouble w a s ’
due chiefly to inexperience but he had confiden ce in h is

,
ability Taking a draft for five thousand d o llars the

.
,
c redit man returned with B lackw ell to h is t own ; the
claim w a s s ati sfied and the sheri ff left the premis es .
B lackwell w a s then in stalled a s manager actin g for the ,
jobb ers who had a ccommodated him .
Eventually by followin g the rule s rigidly B lackwell

, ,
‘
turned the stock paid the cre ditors in full an d cam e

, ,
3 6 WHERE T O GO FOR MON E Y
once more into control o f the reorga n i z ed s tore with a
small working c a pital t o proceed o n .
S ma ll Fa cto rs Which H a ve a B ig Infl uen ce in Obta in

in g Credit f om
r a S upply H ous e
Th e merchant who need s credit and wh o value s h is

credit s tandin g should in the firs t place d o bus iness
, ,
with one house a s much a s po ss ible and a s a precauti on ,
again st forecl o sure he should avoi d havin g a large

,
number of small credit o rs that is s preadin g h is c redit

“
, ,
”
too thin .
A man who went t o a supply house fo r credit doing ,
a b usiness on a capital o f twenty thou sand dollars had ,
s ixty four creditors

-
The credit man w a s obliged to
.
refu se A number of small credit o rs are dan g erous

. .
They have little real intere st in the debt o r and are ,
likely t o force him to liquidate on the first s ign o f

fi n ancial embarra ss ment The tendency at pre sent is
.
t o deal a s much a s po ssible directly with the m a n ufac

turer To buy at random f o r the s ake of little s avin g s
.
in price often result s in complete l oss o f credit .
Remember that the sure st ba s is for accomm o dation is

in the management o f y our b us iness Plan y our .
financing in advance ; c on sider how much credit yo u

may reas onably deman d a n d the amount you sh oul d
extend to cust o mers Watch a l so such matters a s a p
.
, ,
p e a r a n c es ,
in surance the c o nditi
,
o n o f your s t o ck ,
courte sy in dealin g with empl oyee s and cust o mers Es ”

.
t a b l is h a reputa tion f o r integrity Cotipera te with credit .
agencies S h o w willingne ss to con sider the intere st o f

.
house extendin g you accommodati on .
It is good policy t o e stabli sh a personal relation with

the credit man and t o c o nsult him on all matters o f
,
financial importance .
C H A PT R V E
Ta ki ng in Ca pit a l
A KIN G capital mean s sh aring the profit s and
in
sharing t h e ri s k There are two ways to take in
.
capital $ ( 1 ) by admittin g a moneyed partner ; ( 2 ) by

i ssuing s t o ck .
An inventor a dvert i sed for cap ital t o float an enter

pri se He received five a n swers $ four from ch a ttel
.
mortgage sharks and o n e from a man who had a little

,
money and de sired employment for hims elf a s well a s

for it The invent o r accepted the l as t o ffer
. .
H is partner appeared at first to h a ve s ome ability .
The inventor s good opinion o f him however did not

’
, ,
last Every night when the inventor cam e in tired but

.
loaded down with order s h is partner would be wai t ing

,
for h im with a typewritten li st of matters up on which

he wante d t o cons ult The invent o r would skim through
.
the li st and tell him what to do What h e w a s told he .
wo uld always write d own for fear o f f orgettin g He ,

.
had waited for orders until he c oul d not o vercome the

hab it I n a few months capital ran sh o rt Th e pa r t
.
, .
n er sh ip w a s di ssolved alth ough the intere st in the pat

,
ent w a s still divided L ater the i nventor s old the pate n t

.
for ten thou sand d ollars a n d w a s obliged to give five

thous an d o f it to h is former incapable part n er .
3 8 WHERE TO GO FOR MONE Y
Thi s incident illustrates the gr eatest danger o f a dm it
—
ting a moneyed partn er that o f n ot knowing before
ha d whether he will be a help o r a handicap o f a p
n —
prai si n g the mere mo n ey a ss i stan ce above the positive
o r negative influence o f the new half owner .
The choice o f a partner is s imilar t o the employment

o f a high executive except that in the one ca se the em
,
l
p y o ee can be di s charged and in the other a
, lack o f
the qualitie s necess ary to the pos ition can b e remedied
o nly at the cost of one half of the entire bu sines s
-
.
When Ta kin g in Mon eyed P a rtn er Ofi ers the B es t

'
M ea n s of Obta in ing Ca pi ta l
An odd looking we sterner e n tered th e offi ce o f a small

-
real e state dealer in the outskirts o f New York He .
had had succe ss ful real e state experience but he w a s ,
tired o f little deals and wanted to en g age in bu siness

on a bigger s cale After he had pre sented h is project
.
,
the New York real e state man told him that there w as
a real e state o ffice on every corn er and that all the real
e state men in that section were on the verge of st a r va
tion B ut the n ew c omer w a s not eas ily di scouraged
.
-
.
Jus t a s he started to leave disparaging New York meth

'
,
o ds the New York ma n called him back .
” “
Hold on Jenkin s he said
,
You are a good
, .
blu ffer at any rate Here is a li st of propertie s se e

.
—
”
what y ou can do .
The n ext morning wh en the real e state dealer reached

h is o ffi ce Jenkins w a s there with a weazened little
,
o l d woman whom he introduced as h is landlady In a .
week he had so ld her a ten apartment buildi n g After -

.
that the partnership w a s clinched Jen kin s added what

, .
capital he had B u si n e ss pro spered The only phas e

. .
o f the work in which J enki ns proved weak w a s in t he

TAK ING IN CAPITAL 3 9
offi c e and legal end and that became the main part o f
,
the New York man s work ’

.
The experience o f the New York real e state deal er

illustrates the bes t occa sion for taking in a moneyed
partner In h is cas e he secured not only addition al
.
,
capital t o attempt a larger bu sine ss but he g ot n ew ,
blo o d int o h is enterpri se Furthermore the partner

.
,
w a s str o n g where he w a s weak Neither c ould have .
do ne so well alone .
There is s el dom a cas e where m o ney is needed more

than b rain s and energ y Most succe ss ful pa r tn ership s
.
are formed in view of both of these requi sites S ome .
lin e s o f busine ss call for divers e knowledg e and abilitie s

that n o o ne can combine F or in stance in a manu
.
,
$
fa c tur in g pl a nt th e owner may have expert knowledge

of facto ry management but he may be weak in knowl
,
edge of s ales organizati on Or on e bra nch o f an enter

.
,
pri se may depe n d upon an other A g rocery st o re is

“
often handicapped because o f the d istance t o the next

butcher shop A furth er advantage of thi s method lie s
.
in the fact that in the cas e of n ew s cheme s or enter

pri s e s ba sed on new inven tion s there is oft en diffi culty
in s ecurin g funds in a n y other way B ank s will s eldom .
give aid A s tock i ssue or b orrowin g from private in

.
v est ors is s eldom po ssible becau se o f the d iffi culty o f
convincing a large number of people of the profit

chances of your scheme Th e m o ney s ecured through
.
partnershi p belongs entirely to your enterpri se There .
is n o intere st to pay on it and you are in no danger , ,
a s where loan s are sought o f being forced to go out o f

,
bu siness to pay back the m oney .
There are two ways to secure a moneyed pa rtner

( )
1 by pre s entin g your propo s ition a m on g friend s and
a cquaint ance s; th a t is bro a dly speaking priva te
, ,
mean s ,
an by adverti sing in the bus i n e ss oppor
d ( )
2
”
t un it ies column s of the newspape r s and periodicals or ,
public mean s .
When y ou are con sidering a partner do not be in ,
—
too great a hurry give yourself time to tes t him .
“ ” —
Ch oo s in g a partner is like choo si n g a wife in either
ca se there is need for second thou g ht and sure knowl
edge .
A Michigan man w a s looking for a part n er to take

charge of the sale s department o f h is con cern I n stead .
o f choo s ing a man in the u sual haphazard way on a ,
chance acquain tance ship and after a quick judgment

, ,
he made a complete i n vestigation o f several prospects ,
i n volving h is spare time for more than three month s .
He vis ited the place s where they had lived He found .
o ut about their habit s and their standing amon g neigh

,
bors friend s and critic s He interviewed their previous

, .
employers He found out what they had done their

.
,
ability a n d their trustworthine ss The inves tigation .
cost cons iderable t ime and money but it w a s cheap in ,
s urance .
A ne wspaper man who w a s l ook in g for a pa r tner had

received an o ffer o f a b lock o f shares in a g a s company
conditioned on h is support of a que stionable franchis e
g rant t o them .
“ ”
We ve got five thou sand dollars to start with he
’
,
s aid t o h is pro s pective a ssociate .
“ B ut it s a b r ibe ” w a s the quick reply

’
, .
It w a s the answer the newspaper man had wanted .
In another cas e a manufac turer o f ga soline motors

te ste d the bu sine ss a cumen o f pro spective partners by
noticin g h o w they accepted a glowing word picture of
visionary profit s to be made immediately by ma n ufac
t uring m o t o rs fo r aeroplan es .
TAK ING IN CAPITAL 41
B e fore ad mitting a partner you should know

1
. About h is ability h is pa st re cord h is s ta n ding in
, ,
the commun ity h is techn ical k n owledge h is education

, , ,
h is pe r sonal habits h is financial expertn e ss

, .
2
. Whether h is kn owledge experien ce a n d ability
,
c ompl e t e our and u c oul d wo k wi t h him t d

y s y
,
o r o a
vantage .
3
. Whether he ha s a dispo sition th a t inclines him
to re stle ssn e ss .
4. Whether he is ambitiou s ; whether he will put h is

be st e ffort s into buildi n g up your co n cern .
. s —
5 Whether he is hone t whether h is character
warrants complete trus t .
Tw o merchants who had implicit confidence in each

other formed a pa r tn ership upon an un usually wi se
'
ba s e They anticipated no dif fi cultie s from misun der

.
s ta n di n g or from per s onal di fference s but they provided

,
for them neverthele ss In the article s they drew up

.
they arranged for joint apprai s al or an arbitration com

mitt e e to s ettle di fference s between their e stimate s of
the value o f their bu siness at any time They agreed .
al so that no matter which pre sented the proposition for

di ssolution the other would have the right either to buy
o r to s ell . They provided als o fo r eve n re spon sibility
in the addition of new capital The se s afeguards often
.
appear at firs t to be needle ss but the experience o f a

,
large n um ber of partn ership s confirm s their value In .
preparin g the agreement for a partn ership you shoul d ,
provide specifically for a clear divi sion o f the dutie s ,
for the amoun t of profit s to be taken out and the amoun t

to be put back into the busine ss for a f a ir interest on
,
all inve stment s and withdrawal s for res erve s for the
, ,
s alary bas i s in ca s e the pro fi t s are not divided eve n ly ,
for the routi n e of apprai sal and continuation or liquid a .

42 WHERE TO GO FOR MONE Y
ti o n o f the busine ss in ca se o f the death or withdrawal
o f o ne o f the partners .
The S econ d Metho d of Ta kin g in —

Ca pita l I ssuin g
S to ck for an E n terpris e
There is a cl o se c onnection a s t o advanta g e s and dis

advan ta ges between the i ssue o f stock a n d the firs t
—
method o f taking in capital the partnership In both .
cas es the ri sk and al so the profits are divided .
In mos t small bu siness e s a stock i ssue is impracticable .
These enterpri ses depend almo st e n tirely upon the abil

ity o f the manageme n t and an i ssue of stock entail s a
s acrifice o f management to the s t o ckholders One s to ck .
holder will advi se o n e th in g ; another somethin g el se .
I t is generally a c a s e o f too many co ok s Occa sionally .
inactive s tockholders are l o oki n g only for a chance t o

inves t their money profitab ly In mos t small enter
.
pri ses however it is a s ea sy t o s ecure loan s from the se

, ,
inves t o rs as to sell s tock The advis ability o f a s tock

.
i ssue un der thes e condition s depends upon your ea g er

n ess to divid e t h e r is k .
—
With larger corporatio n s railways and great indus
t rial works in which a larg e amount o f capit al is n eeded
s t o ck and bond i s sue s o ffer the onl y s o lution p o ss ible .
Whether or not it would be advi sable for you t o adop t

thi s method of rai s ing capital depends in the firs t place , ,
U pon whether inte r es ted s tockholders woul d be a help
t o your e n terpri se With the interurban trolley th e

.
,
g as,
electri c light and wat e r c o mpanie s of the small
city nothing will aid so much in the work o f c on strue
,
tion in se curing patro nage an d retaining it a s having

, ,
share s s cattered among the fa r mers workmen merchants , ,
a n d pr o fes s on a l men o f the community Thi s is al so .
true of m a ny whole sale ventures .

TA K ING IN CAPITAL 43
A plumber decided to rai se capital t o st a rt a n e nter

p ri s e ba s ed upon a device he had perfected He had .
s o me capital of h is ow n and could have r a i s ed the nec
ess ary money by borrowing o n h is c ollateral a n d on

person a l note s He re a soned h o wever that if he
.
, ,
s hould f o rm a corporation and s ell t h e st o ck t o the

plumbers in the di strict where he expected t o do bu si
ness the success o f h is venture would be assured The
, .
plan succeeded The us ers of the company s product

.
’
were directly interes ted in it s welfare Their support .
al o ne secured enough business to e stablish the enterpri se .
I n the a ctua l placin g of sh a re s of st o ck principles ,
s imilar t o th o se of s ecurin g a m oneyed p a rt ner apply .
Th e m e thod may be either publi c o r priv a te As a g en .
eral rule only priva te presentation is practicable excep t

,
in t h e ca se o f larg e c orpora t ions The strong est pro s

.
p ectu s n o t only deve l o p s t h e ro

p j e c t but in di ca t e s t h e
succ e ssful int erest s b a ck o f it Signa t ures are be st se

.
c ur e d o u a sing le sh e et headed with the na mes of th e

’
mo st influenti a l stock buyers .
When the money is needed for t h e expan sion of the

b usine ss th e ba si s of th e s elling c ampaign should be the
,
c omplete report o f s ome ce rtified publi c accountant ,
s h o wing exactly wh a t h a s been done in the pa st Thi s .
s tatement will get c o n s ideration when nothing el s e will .
I t is alway s expected that the promoter of an enter

p ri s e will be enthu s ia s tic but
,
f a c t s and fi g ure s are not
s ubject t o mental di sc o unt .
A cl o se anal o gy exi sts bet ween th e issue o f bonds a n d

the i ssue of stock A b ond h owever is a direct lien
.
, ,
U pon the p r o pert y of the c o rp o ration A stock i ssue.
divides the risk ; a bond issue on the other hand is a , ,
form of mor tga g e ; th e risk and pr ofit are wh olly upon

.
the b us iness .
44 W H E RE TO GO F OR MO NE Y
In pre sentin g stock fo r sale am ong local invest o rs ,
let your pro sp e ct us touch th eir int erests n o t o nl y o n t h e ,
bas i s of pos sible direct profit but al so on the ba si s of ,
indirect benefits t o be derived The eas e with which .
you s ell your st o ck depends up o n yo ur ability t o ta lk

your proposition Find out what intere st s appeal most
.
str o ngly to your particular pro spect and empha size ,
them In selling the s tock of a pre serving factory in

.
an Idaho town the promoters showed the advantage t o

,
the farmers in markets ; the advanta g e to the banker in

increa sed acc o unts ; and the advantage t o the merchant s
in increa sed s ales of supplie s t o the plant and t o the
employee s The stock o f a s anitarium w as sold by
.
s h o win g the l o cal inve stors h o w the town would become
m o re desirable for re sidence s how property value s ,
would appreciate h o w the practice o f phy sician s would

,
be built up and h o w the merchants could increa s e their

,
busine ss In placin g st o ck these are some o f the inter

.
,
e sts to play up o n Show how your particular pro spect

.
will be benefited indirectly and how profit s ma y reas on

ably be expected from the bu sine ss it self I n thi s way .
you will secure c ooperation a n d s upport a s well a s ,
c apital .
Kee p Co n tr o l
F ut id p it l mu t b u d
I l t it m f m t h w h h v
o s e ca a s e sec re ,
e co e ro o se o a e
im p l i it cfid i th
con g i e n ce n e or a n z e rs
an d w h o w ill c o n si d e r t h e a d va n c e on ly
a s a p ro fi t a bl e in v e s t m e n t
— H en ry Clew s
.
Wha t is Credit ?
m v m f a fi g a ba ga f i figu i
T the o e en t o n er r in o s x re s s
mad i h wh a pi A w d d a d buy d
e n t e e t t or an no an
ll a l ad i h wh l al h u C fi d —
.
se c r o s n h t e o es e o se on en ce t e
fid al ag t i h buy u d li d
.
c on f he n ce o — t e s es en n t e er n er es a n
e xp di e di bu i
t es c re t s n e ss .
I p n i ly t h am way fi d u d li th i
re c se e s e co n e n ce n er es e n
v m e st d h l di g f m
en t a n y h fi i g fy u
— t e en n o on e t e na nc n o o r
bu i Th m
s n e ss h fu i h fu d buy d ll
e an w o rn s es n s s an se s
fm y di T u a upp ly fm y
.
t h e use o on e o n c re t o se c re s o on e
f m h im y mu h w him ha i i g d bu i f
.
ro ou st s o t t t s oo s n e ss or
h im l d y mu mak him fid
to en ; f ou ivi g st e co n en t o re c e n
h i p i ipal
s r nc d hi p fi an s ro t .
Y may u y u di by a gibl a l gally

ou se c re o r cre tor t n e sse t s e
b u d db y dy u
o n an l y may u h im
e on o r con t ro ; or ou sec re
by y u p al p mi pay
o r e rs o n ro se to .
Ap al p mi d p d
ers o n y u willi g ro d se e en s on o r n n e ss an
y u abil i y k p i M f h
o r t to f u abl ee t en o o n o r a re o ten n e
p ay m f p p y f di h ab
.
to — en o T ro e rt a re o ten s o n e st . o e st
l i h b h y u abili y d y u willi g
s ot o r pay q ui t an o r n n e ss to re re s
a a m fh p p y
st te en t o
all p ibl t v id e ro ert y o u o wn ; o ss e e e n ce s
o f y u bu i o r abili y i ha dli g y u p p y d
s n e ss t n n n o r ro e rt an
en ter p i h ugh d m a i f y u ha a
r ses ; t o ro e o n st r t on o o r c r c t er .
Th m efl awl h bu i
o re dy i u lyess t e s n es s re c o r o u c o n sc o s
d v l p d h m h ughly y p
e e o an t hi i
e o re t o ro ou re se n t t s ev
d wi h bu i lik a um h m t ily t ou
u m y C i
en ce s n e ss y e c en e o re e a s ca n
dit ly by
-
,
se c re on e b h d o n s st e n t c re ca n e a on
p vi g ha y fl g i ly h d a p abl
.
ro n t t t o u a re un a g ng on es an c e
t ha y will mak v y ff
t ou p y d ha ba k e e er e o rt to re a ; an t t c
o f ff e li fi ial k wl dg l i k d wi h bu i
o rt es na n c no e e n e t s n e ss
pw o e r.
T
EA C T O RS T HAT ES T A B LIS H
”
,
FI NA NC I A L C O NFI DE NC E
A bili y i ai dufu d
t t o r se
b
n s
y hi b
hau i y
ds
m a
ha
onl f a ui kl
t he
y s n ess a nd p erson c t o rs t he
i da g $ a ml a m
b o rro wer n t ro ces a s
,
reco gn z e a cl ea n recor
s
.
wn
s t ro n
in es s l
-
t
a
s
p$
c
l,
e secur
rt
it y
.
co
Mo n e
p e te st
erc
te
n ts
en t an
q c
d b us
CH AP T R V E I
F ina ncing on Rea l a nd P ers o n a l
Pro pe rt y
wa s d by a south west ern chamber o f
n eede
commerce for the erection of a new building To .
rai se funds the directors jo ined h ands with a local life

in surance company which w a s seekin g to gain the mo
mentum o f high grade local patronage The in surance
-
.
o ffici a ls o ffered the chamber o f commerce a liberal

s hare of the commi ssion o n every policy written at the
in stance of its membership withi n a given time U pon .
this bas i s the chamber of commerce fin anced its build

,
ing completely in le ss th an s ixty days .
The secretary of a Pen n sylvania concern w a s buyin g l
the s ale s rights o f a sub sidiary product He fi n a n ced

.
the purcha se by selling five town lot s on time ; by se cur

ing $7 5 0 from an aunt who agreed to become a s ilen t
partner a n d by borrowing $5
, 00 from h is former em
ployer on h is personal note .
Finance h s but one rule for securing f und g ive

a s—
‘
a n e q uiva len t . Getting mon ey may always be con sid
ered a s a straight tran saction of purcha s e a n d sale The .
chamber of commerce sold to the life in surance com

pany it s services a s a policy writin g agent backed by
-
t he e ffort s o f its powerful bu s ine ss membershi p a n d it s
47
48 HOW TO U S E CREDIT
parallel appeal for the e n dowment o f a public in st itu

tion The Penn sylvania secretary actually di spo sed of
.
h is real e state and s old t o a money broker the note s r e

c e iva b l e thereon ; to h is partner he s old a fraction o f
the po ssibilities o f h is enterpris e ; and to hi s former em

ployer he s old an inve stme n t for a definite period giv ,
ing a s a final con sideration a share of h is future income

amounting to the full mon ey value plus a guaranteed
p r o fit o f six pe r c ent H e .firs t u s ed actua l po ss e ssion s
which he could tran sfer t o another holder and then filled ,
o ut h is fund by re s ort t o h is credit standin g and in
tangible chance s o f future profit in which the money

,
lender w a s willing to purchas e a n inve stment .
When money is needed for a bus ine ss the one question

is $ What have I to sell ? And the o bvious an swer
”
the ea sies t and mo st certain s ource o f funds lies in —

thos e material propertie s which can be tra nsferred t o
o r legally bo und by the c o ncern that in return furni shes
y o u with money .
How to List You r P ro perties a ndCho os e Thos e Tha t

Will H elp Yo u M ost i n the M o n ey l l a rk et
F inances are often s ecured b y s ale or pledge o f prae

tically every item that sh ows upon a n inve n tory s heet ;
re a l e sta te and buildings leas es water frontage freight
, , ,
connection s water power rights machinery a n d fixtures

, , ,
p roduct s at any s tage o f ma n ufacture where they are
eas ily conve r tible franchi ses and contracts copyright s

, ,
and patent s life in suran ce policies pro spect and s ales

, ,
lists Negotiable paper an d s ecuritie s such as the real

.
,
es ta te mortgage , the bond a n d the warehou se receipt for
grain are ba sed upon definite material pro pert y and

,
have a recogn i z ed s al e or lo a n value when taken to

p roper market s .Other s ecuritie s such a s stock c e rt ifi
,
FINAN CING ON PROPERTY 49
ca t e s note s receivable and account s receivable have no

, ,
tangible backi n g except the general credit and profit

chan ce of the debtors S uch securitie s are usually de
.
po sited by a borr ower merely to stre n gthen the credit

s tandi n g which is actually the ba s i s o f the loan Nine .
hundred thousand dollars w a s recently advanced upon

deposit with an agreed tru stee of in notes
receivable The creditors were cleverly protected how
.
,
ever thro ugh the borrower s agreement to d epos1 t cas h

’
$
monthly with the tr ustee a ssuring repayment at the rate

of an n ua lly Moreover quarterl y statemen t s
.
,
were re n dered to the tr ustee a n d h is advice i n vited a s

an ext r a a s surance of continued credit a n d pro sperity
for the borrower .
Ta n gib le propertie s represent not merely ( 1 ) some

,
thin g wh ich can be sold out r ight but ( 2 ) s omethi n g ,
which c a n be mortg a ged to len ders or 3 ) somethi n g the

,
us e of which can either be s old or re n t e d for t h e period

o f fi n a n cia l n eed . In th is analy sis lie s the s ecret O f suc
cess in s ec ur i n g fun ds o n property a s a b a si s .
A Dakota merchant sublet the ba seme n t o f h is st o re

at a figu r e which en ab led him to fin a n ce a n adva n ce in
the price of h is own l e a se a n d prevent a competitor from
crowdi n g h im out A merchan t seeki n g a ba n k loan
.
, ,
cli n ched h is ca se by dr a w m g from h is pocket a contract

de sign atin g him a s the Official supplier for a chai n of
railway con st r uction camp s A S outhern man ufacturer
.
rai sed fun ds by re n ti n g warehou se facilitie s to a fur n i

ture dealer who happe n ed to be crowded for storage
room Wh a tever your ho l di n gs re s ervation s o r inve st
.
,
ment s it is a l m o st certain that if they are ta n gible

,
they have a d efi n ite val ue somewhere .
Whether you are sub letti n g floor space di spos ing of ,
an idle machine o r negotiating a loan on merchandis e

5
invent o ry th e finan ci a l pr oblem o f makin g the m ost o f

,
your tra n sferab le holdin gs is e ss en tially a sale s problem .
The executive who us e s them with best re sults ( 1 ) take s

a s ale sma n s adva n tage o f the time elemen t ( 2 ) fi n ds
’
the be st market in which to offer h is commodity or

s ecurity , ( 3 ) cleverly arous e s the poss ible competition
in that market for that commodity ( 4 ) excite s a de ,
s ire not o n ly for what he h a s to o fi e r today but for ,
h is fin ancial patro n age month after month .
The shrewd manager o f finance like the succe ss ful ,
sal esm an looks ahead studie s the money market o fi e rs

, , ,
h is securitie s or holdings when time s are favorable and

even buys h is re serve stocks and bo nds un der a plan
which make s them available at the times when other re
s ource s fail .
There is a n art too in checki n g over a ll the different

, ,
individuals money brokers a n d s ource s o f fun d s to de

,
termine which o n e places the highe st value o n the prop

e rt y y o u o ffer A you n g groc er in a Columbia River
.
t o wn w a s in need o f for a grocery which he had

e s tablish ed in a neighborin g city ; yet there s eemed n o
way to rai s e the money except to s ell at a s acrifice h is
home store in the sluggi sh village A s he checked over .
all the po ss ible buyers for the unattractive small town

bus ines s howe ver h e hit upon o n e man o f mode st ambi
, ,
tion s and capital w h o being boun d to the town by all

, ,
the tie s o f h a bit a n d family might snap up the pur ,
cha se A s it proved the findi n g of the on e live market

.
,
fo r h is o ffering enabled the young grocer to clo se an

advan tageou s sale .
”
The choice o f lenders or buyers for the i n ve st ,
ment s y ou o ffer mus t be cons idered in view of the s e

,
cur it ie s you propo s e ju st a s the grocer narrowed down
h is s elling campaign to the on e be st buyer for h is s to re .

F INAN CING ON PROPERTY 5
1
C ommercial banks demand rea dy money and quick a s

sets ; natio n al ba n k s are prohibited from loaning upon
real estate The man who come s into the market for
‘
a mortgage loan o r with slow a sset s a s security mu st ,
a pply to the i n dividual to the money broker to the

, ,
s tate bank o r tru st compa n y With every clas s o f pr e p

.
e r t y and paper like facts are s ignificant

, Th e man who .
expects to fi n ance cleverly studies the m oney market

,
before he enters it .
H ow S a lesma n ship in the P resen ta tio n of Your Re

qu e st a n d S ec ur ity Oper a tes to Get Lo a n s
Aea s oned bu sin e ss man w a s indignant becaus e he

s
failed to s ecure a ba nk loan of for the summer ,
upon a security O f ten tim es that amoun t H e could .
not explain the refus al he had met .
“
B ut do you u n dersta n d inquired a friendly fi n a n
,
cier “
,
that money is tight ju st now an d that banks
are busy taking care of their regul ar cus tomers ? A p
plication s for ban k loan s are li sted a n d come before the
directors or some Of fi cial for deci sion All or a few .
loan s may be gra n ted dependin g upon the attractive

,
ne ss o f the i n vestmen t s a n d upon whether o r not the

bank h a s a large bala n ce to put out at intere st Firs t .
favors go to regular and s ub stan tial depositors then to ,
smaller depo sito r s a n d fi n ally to out s ider s in the order
o f the s ecurity they o f f er the inte r e s t they b id for the

,
purchas e o f ready mo n ey and the future patron age they

can award the ban k What you have failed to do is to
.
understand that mon ey lenders vie with on e an other to

s elect the most attractive holdi n gs Y ou have n ot .
studied the market for your borrowi n g s nor put s ale s ,
”
man ship i n to your propo sition .
Negotiable paper is us ual ly s old through brokers but

‘
,
5
2 HOW TO U S E C REDIT
dep ends for sa lability upon similar c onsiderations Th e .
clever b o rrower s eek s funds when the lender s bal ance ’
for i n ve stment is larg e ; his application is attractive in

proportion as it bears signatures o f k n own s tanding a s ,
it O ffers g ood interest a s it s securities in the way o f

, ,
warehous e receipt s me r chan di se stocks and s o o n a re

, , ,
high grade The purchas e o f a mortgage invo lve s ex

.
pert inves tigation o f the property ; pro o f that it includes

an o ccupied and inc ome producin g s tructur e ; a decis i on
-
,
in the ca se of a city bank b y a l o an committe e o f c api

,
talis ts real e state inve stors and other experts t o uch in g

, ,
the value Of the pr o perty imp r ovements c o ndition of

, ,
buildings materia ls us e d and whether firepro o f in sur

, ,
a n ce condition s guarantee o f title and finally whether

, , ,
the loan total is sufficiently un der the appr aise d va lue

o f the s ecurity .
With the country merchan t o r the head o f a littl e

factory the negotiat io n o f a l o a n may seem informal
, ,
but will follow thes e same fundamental line s At n o .
point d o set rule s g overn The transaction o f gett ing

.
mo ney on s ecurity is a g enuine s ale Th e m o ney l en der

.
buy s what o ffers h im the g re a te st a dvantag e S ecuri .
tie s bring their maximum o nly when o ffere d at th e

right time t o the b est market a n d with t h e m o st a t
tractive s etti n g .
S ale smans hip in financ in g upon material pr operties

h a s c o me t o dem a nd that y o u t a ke the money l ender s
’
m otive s precautions and wishe s frankly int o acc o unt ;

,
that you make the facts o f your pres entation full a n d

flawle ss ; that y o u dem onstrate in surance protection titl e ,
guarantee and every fact o r that mak es fo r s ecurity or

carrie s pers ua si o n w ith the money lender ; that y o u em $
p h a siz e the “
you ”
intere s ts which have led you t o brin g
y our s ecurity to thi s part icul a r market ; that y o u app ea l
F I NAN CIN G ON PROPER TY 5
3
t o the un d erlyin g desire s with ar gument pro o f g ua r

, , ,
a ntee and inducement jus t as a clever s ale sman gain s

,
for h is g o ods the highest regard a n d the readiness to

p ya a pri ce w hich spell s p r ofi ts .
A steel company faced an imp ortan t demand for cas h .
Th e presiden t c a m e b efore h is exe cutive s and sa id $

An y s taple such a s cotton wheat corn c o al rep
“
, , , , ,
r e sent s va lue o f a s g enuine a sort a s c o mmerce o ffer s .
We have a half doze n piles o f iro n o re on the river

-
front We cannot show w a reh ouse receipts but I am

.
,
g o in g down to the bank and invite my friend s there

t o send o ut a watchman with auth o rity t o guard ore
p ile s Number s 4 and 6 a s the bas i s o f a loan
. t o meet
o ur need s . He will have authority to check wei g hts
a s the o r e is u sed in order t o see that we pa y back
,
”
the money more rapidly than we use up the s ecurity .
The manufacturer went t o h is b a nker pre sented his ,
c a se frankly hinted at the v a lue o f h is account t o the

,
bank o ffered an extra half per cent interest a n d sug

,
g e s ted the o r e pile s a s s ecurity The . loan w a s made .
I n every bu sine ss there are such p o ssibilities of fi n d

,
in g a ba si s in fixed a sset s in m a t erial s or in o ther

,
s ecuritie s for cas h s ale s o r money loan s With a sales

.
man s cleverne ss in kn owing market rule s a n d c ondi

’
ti o ns in a ppreciatin g value s choo sing times and lo ca t

, ,
in g pro spect s there is no simpler rule o f finance than

,
t o o ffer as a final value o r a s securi ty the tan g ible

, ,
pr o pertie s which be st as sure the b uyer o r len der a full ,
e quival ent fo r h is money .

C H A PT R V E II
P o int s That W in t he B a nk er an d
Credi t Ma n
A C T S are th e ba si s of every busine ss tran saction .
“ ”
Give me the fact s s ays the executive to whom
,
you are pres enting a propo sition whether you are seek
,
ing a loan applying for a po sition s elling goods o r mak

, ,
in g a complaint .
Nowhere are facts more important more requi site , ,
more s elf sufiicin g than in securing credit Present all

-
.
the facts of your ca se .
The po sition of the banker like that o f a lawyer is

, ,
a po sition of trust If the b a n k e r is engaged in a com

.
'
petin g line o f bus ine ss or is conn ected with competing

firms it is imp oss ible to submi t details with complete
,
frank ne ss B ut you should avo id the di ffi culty by y o ur

.
choice of bankin g connection s .
It is n o t only nece ssary in mo st cas es to state the

ess ential fact s o f your bu s ine ss but it is good policy t o
,
give the m on your own initiative S us picion deception

.
, ,
even an appearance of concealment are antagon istic t o

credit In large ba n k s methods o f obtai n i n g informa
.
t i o n about borrowers have been reduced to a complete

and e ffi cient system Mercantile reports in dividual
.
,
sta teme n ts
“
,
cooperative trade clearin g house rep ort s
5
4
CREDIT POINT S 5
5
these medium s o f obtaini n g info rmation about you are
u sed by all credit m en The e fficie n cy o f the i n vesti
.
g a t io n s is a rea s on in it s elf for the exerci s e o f b o th

f r a n kne ss a n d ve r acity in your credit application s .
A manufacturer in a small Illin oi s city wen t to a

large bank in Chicago to secure a loan In the pa st .
“
he had simply gon e to h is local ban ker and said $ John ,
”
I w a nt for sixty days The o n ly ceremon y
.
attached to borrowing w a s the si g ning o f a promi ssory

note The ba n ker had the fact s without a sking
. .
At the city ba n k the fir st sheet o f the statement he

w a s required to fill out o ffe n ded the ma n ufacturer Why .
s hould he reveal t o the ba n k a l l the s ecret s o f h is profits ,
s ale s a n d expe n s es ? Why should he be required to go

in to a n cie n t hi story a n d tell how he started h ow he ,
got h is capital a n d how much mon ey he h a d d r awn out

o f t h e bu s i n e s s every year ? S ome o f the qu e stio n s were
even embarr a ssi n g The r e were item s O f co n ti n gent lia
.
b il it ies notes he had e n do r s ed for frien ds that he c on

, ,
s id e r e d h is per s o n al a ffair a n d not co n n ected at all wit h
thi s p r opo sed loan S ome o f the que stions he could not
.
a n swer con ve n ie n tly He left the space s blank

. .
Next day a diplomatic a n d bu sin ess like m a n calle d

-
and i n troduced him self a s Mr B rown of the Credit In

.
formation B ureau With the fi rs t question he grew

.
personal .
“ ”
Y ou are ma r ried I believe ? he a sked
,
.
Fiftee n years ”retorted the manufacturer

, .
”
More than once ? The credit man w a s polite and
smili n g .
“
Y e s t w ice
,
.
And h ow much o f a family ?

Other questio n s followed alon g the same lin es even ,
concerning the amoun t of h is hou sehold e xpens es Th e .

56 HOW TO U S E C REDIT
credit man then went to outs ide s ource s fo r fact she

could not get in the inte r view He found out the bus i .
‘
ness hours the manufac t urer kept h is amu sement s h is , ,
habits There w a s n othing startling about the report

. .
The bank would have con sidered him a good ri sk had

not its credit department been afraid o f h is se cretive
ness The loan w a s refu sed
. .
If you try to hide the fact s of your bu sine ss or t o

mis repre se n t them the weak ness that is concealed will .
almost inevitably c ome to light The bes t plan is to .
make a clean brea st of it You have a chance then of

.
s ecuring a loan beca use o f y o ur frankne ss and inte g
r ity.
Wha t I nforma tion Coun ts Mos t with the B a n ker a nd
S upply H o use Credit M a n
The first in formation the banker or credit man wants

is ab o ut y our character Have you always paid y o ur
.
debts and done so in a prompt and bu sine ss l ike way ? -
Do you keep your promi se s ? What is y our experience

and what success have you b a d ?
W hat the pre sident and ca shier formerly carried in
t heir head s the credit department o f a bank or supply
,
hou se now carrie s in it s file s with much m o re that ,
s eem s impertine n t t o the O l d s chool of bu s ine ss .
A manufacturing hou se e stabli shed eighteen m o nths

, ,
d o in g a good bu sines s de sired t o make it s first loan

,
.
I ts chief Official made h is application in per son at the

president s offi ce With some pride he exhibited a se
’
.
ries o f photographs showin g the plant ext eri o r and

interior .
Th e banker fumbled the phot o graph s a n d compli

men t ed their arti stic fi n i sh then he to ss ed them a si de
,
.
“
Phot o graph s do not repre sent the bes t s ecurity he”
,
CREDIT POINT S
5
s aid. We d o not loan on real e state or on factory

equipme n t Here is what we shall have to a s k for $
.
,
( )
1 a s tateme n t showing what you have do n e in the
pa st s ix month s ; 2 ) a l i st of your account s rece ivable
with all information you c a n furn i sh concern i n g the
firms that o we you money ; ( 3 ) facts about y ourself ,
your capital stockh olders offi cers stocks o f goods or

, , , ,
g a n iz a t io n sy s tem
,
of accounts and co s t keeping in s ur ,
ance a dvertising b uying a n d s ale s o rg a ni z ation

, ,
”
.
The manufacturer went away with an entirely dif

fer en t viewpoint He made up a lis t of h is accounts
.
receivable On eve ry big account he gave the rati n g

.
and financial condition o f the concern showed how much ,
they owed how l ong the account had run the average
, ,
time in which thi s firm had paid b efore .
He proved that h is cu stomers were m os tly soli d con

cern s w h o paid on lon g tim e but regularly He showed .
that h is account s payable were more than covere d by

the raw material at h is plant Then he explained t o .
the ba n ker h is organi z ation h is various production unit s

, ,
h is s elling pl a n ; h e pointed o ut h is co st s h is small s ell ,
ing expen se and h is safe marg in of profit When the .
banker had thi s informati o n he w a s q uite r eady to make

the loan .
The informati o n d emanded by the s upply hou se credit

man is n o l e ss complete and exacti n g than that required
by the ba n ker Whether y ou are buyin g nail s or c e
.
ment f r uit s drugs o r raw material such a s steel iron

, , , , ,
o r e or cotton the s ame facts conce r ni n g pers onality

, ,
condition of bus ine ss and as s ets c ontrol the deci s ion .
In th i s chapter is sh o wn the blank required to be

filled out by every applicant for a loa n at one large city
b ank . Thi s statement makes you dig down t o the blunt
reality In country b an k s the credit information is
.
CREDIT POINT S 5
9
more a matter o f gen eral knowledge and is obtained

with le ss formality B ut in both cas e s the demands are
.
the s ame .
I tems Tha t S hould H a ve P romin en ce in the S ta te

men t of Yo ur B usin ess
The deta ils o f th e informati o n w ante d vary t o a cer
tain extent S ome bank s place empha sis o n all fact s
.
concerning ability and inte g rity while other banks em ,
ph a s iz e as s ets What y o ur s
.tatement should s how de
“
pends largely upon the kind and extent o f your busi
No u
p w ful
seci y x i
r whi
t h d
fav ablm all
e st s c o es
d u
ai l
n o t s n fi er ua
hfli l i
ct
d v a l u
a
t on s
d v w
y
inll
h i bha l a d e A e -
nc e and
di
.
o er pe rso n a lIty , or e in t he et s ere st e , st n s er g in t he o

s
t i a tion m
of en who fer c re
of t
ne ss A corporation s
. s tatement h oul d comply with the
following requirement s $
1 . It should be made out c omplete in detail and p r e
fe r a b ly certified by a public accountant .
2 . It should take up capital stock preferred ,

and
comm o n It shoul d give detail s con cernin g hist o ry

.
,
ownership legal a spect s and dividend policy and should

, ,
s how the s u rp lu s belo n gi n g to the shareholders .
3. It should include a s e r ie s o f inve n tory tables g iv

ing mercha n di s e price s real es tate value s ac coun t s and
, , ,
bill s receivable an d payable .
4. It shoul d give detailed table s of inc ome and ex

pen se ; al so the annual and averag e profit s .
5 It should contain a lis t o f creditors wi t h am ounts

.
,
and date s due and the name s of the o fficers o f th e

,
important corporatio n s t o whom money mu st be paid .
6. It should include a li st of the am o unts o f in sa r

ance carried in di fferen t companie s .
7. Individual record s o f the applican t s offi cers in ’

,
cluding age s ala ry bu sine ss record duties life in sur

, , , ,
ance payabl e t o the company liabilities o ut side in , ,
t e r e sts he a lth a n d education should al s o be shown

,
.
The s tatement o f a small manufacturer merchant or ,
profe ssional man is less complicated Any s tatement .

,
however sh o uld show in pa rticular the record for the

,
pa st s ix month s ; acc o unt s receivable ; accounts payable ;

capital stockholders o fficers ,stocks of goods o rgani za
, , ,
tion insurance together with any significant facts that

, ,
apply to the particular bu sine ss U pon such a basis .

,
financial accommodation may be assured t o the m a xi

mum o f g oo d bus ine ss practice .
T is not p r ud e n t e it h fro m t h e
er
st a n d p o in t O f t h e b o rro w e r o r t h e
ba n k to h v a e the b a n k s upp ly m o n e y
fo r in v e s t m e n t in a p l a n t o r in re a l
e st a te —Geor e E Ro berts
.
g .
C H AP T R V E III
H o w t o B uild a
R ep ut a t i o n Tha t
A ss ure s Credi t
S TA B L I S H a credit st a ndin g $
No concern h a s enou g h money t o e scape c on sid
c ration o f thi s q ue stion To o muc h money in a bus ine ss
.
means little o r no profit from the inve stment TOO .
much credi t is unheard o f except where the privilege

,
is wrongfully u sed and then credit is s o o n lo st alt o

,
gether.
Y ou sh oul d s pare n o pain s to prove your s tability t o

y o ur creditors U se diplomacy ; use every h onorable
.
method with in reach to have credit brought to you DO .
b us ine ss in so progre ssive a manner th a t y ou will be

a sked to a cc ept credit .
In building up your credit standin g y o u sh o ul d un

,
d ers t a n d the importance o f little detail s and make con

,
s ciou s effo rts to sh o w up tho s e that are o f value Co n .
s ider fir st
,
the import ance of superficial appeara nces of
prosperity and strength S mall creditors local trade s
.
,
men and thos e who supply the everyday nece ssities o f

o ffic e and s tore e specially rely upon the prosperous man
ner and appearan ce of the man with whom they deal .
An easte rn con cern decided t o start a branch in an

Arkansas city The fi rm was developin g fast a n d a
.
ful l line of credit w a s always in us e There w a s gre at .
temptation to economize on office rent a n d fixture s The .
firm rea s oned however that es pecially from a credit

, ,
standpoint retren chment here would be poor economy

, .
The o ffice s fi n ally cho sen were in a b uildin g where s ev

eral powerful concern s were located The fittings of .
the o ffice a s well a s the location implied such pro sp erity

, ,
th at small credit o rs granted accomm o dation eag erly .
Appearances are important A mahogany de sk h a s .
d elayed the pre se ntati o n o f many small bills and a

“ ”
bird s eye view o f our factory e ffectively hung where
’
-
all may see will often extend credit B ack o f appear

, .
anec s however mu s t lie the s olid con s is tent bu sin ess

, , ,
power which never fails o f obli g ations and inte g rity .
B uildin g Up a Credit S ta n din g thro ug h F ra n kn ess

in Dea lin g with Creditors
E specially in a n ew bu sine ss ab solute frank ness is a

requi site o f credit S how your creditors facts concern
.
ing the condition a n d pro sperity of your bus ine ss ; tell

them why you need long time ; explain to them exactly
the ba si s on which you buy and sell If you as k for .
sixty o r ninety days time show why it is advi sable

’
,
to have the money for that period how you will profit ,
by the loan whence you have the future incom e to

,
meet your bill .
The bus ine ss o f a southern manufacturer h a s gro wn

very fa st in the la st five years and h is capital h as never
caught up with h is need s but the credit he h a s s ecured
,
h as more than compe n s ated for the l ack of capital .
When ever h e a sks fo r more than the usual thirty d ays ’
time he explai n s to h is creditors exactly why He .
s how s that the p u rcha s e on which time is s ought will
n o t bring a return fo r at leas t a s long a time a s the

B U IL DING A CREDIT REP UTATION 63
credit asked F o r in stance if he buys material wh ose

.
,
pro ce ssing is very sl ow so that th ere will be no r e

,
tu rn short o f three to six month s he ask s ni n ety days , .
If he i n tends to put out a new line upon which he is

—
going to gi ve hi s cu stome rs long time four to six
—
months h e a sk s corre spondin g credit Thi s shows the .
creditor that he is supplying money only for temporary

needs or opportunitie s and it al so impre ss es him with
,
the fairness of the debtor .
The se are some o f the mean s b y which credit ma y

b e c on sciou sly cultivated C redit st a nding is being de
.
$
vel ope d month after month by shrewd merchant s ; but
will n ot g row o f i tself To build it up require s daily

e
attention to the credi t and o ther manag ement factors of

your bu sine ss .
H ow You M a y Lose Yo ur Credit S ta n din g through

A buse f
o Credit
Y our credit e stabli shed the m os t imp o rtant advice is
,
Neve r a b use it Make extraordi n ary e ffort s to meet ju st

.
demands at the time y ou h a ve set It is not alw a ys .
po ss ible t o meet a bill on the date it is due o r to pa y a

note on maturity but never let thes e payments go by
,
defa ult ; do not wait until the collector is at your cash

ier s window Fore see and foreplan
’
. .
Mana g ement regards not only s ales buying and ex ,
pen se but al so accountin g You should keep a record

,
.
o f amounts payable s o that you will have an ab s olut e
check on note s due ; you should handle di sbursement s

to take care of the s e amoun ts before eve rything With .
your financial condition well in mind then if you c a n , ,
not meet a note take up the matter with your creditor

,
and come t o a de fi n i te arran gement t o e xt en d the n o te , ,
to give new n otes or t o make p a rt payments .

64 HOW TO U S E CRED I T
The same h ol ds true o f o pen acc oun t s S ettle t h e .
term s on which you buy before y ou place your ord er ,
then obs erv e the se term s Never tell a collector t o call

.
“
” “ ”
tomorrow or that you will s end a check when a c
, ,
cordin g to the terms o f the sa le payment w a s then due, .
If you cannot pay a bill when due sa y s o at once and , ,
either se t a de finite date and then ob serve it or a sk ,
that the m att e r be taken up again a t a specified time . .
In regard to your ba n k balance con se rvative bankers ,
c o ntend that twenty per cent o f the amounts o f your

.
loans should be kept in the bank a s a non interest b a l -
ance Thi s is evidence of good faith and o ffers a fair

.
,
margin o f s afety to the bank B y main tai n ing a r e w

.
s onable balance rigorou sly your credit is s trengthened

,
.
Wh en y o u deal with t h e bank understa n d and re spect

,
the rules that its i n tere sts make nece ssary D o not a s k .
f o r accommodation it cannot grant Comply on your .

,
o w n initiative with a l l the rea sonable requirement s o f

,
your creditors whether you are dealin g with banks

, ,
s upply hou s e s o r private inve stor s

, .
B usin es s Metho ds by Whic h Shrewd Fin a n cia l H ea ds

S te a dily S tre n g then Credit Reputa tio n
Merchant factory men vers ed in fi n ance have

an d
worked out a con s i stent plan o f credit building Points .
o f business policy in line to thi s end are $

1 . To submit an accurate and detailed statement o f
a ffairs at lea st once a y e ar to the bank In the cas e .
o f a manufacturin g concern or any large company the

, ,
stateme n t is bes t made by a reputable firm of certified
public a ccoun tant s It show s all the e sse n tial details of

.
the bu sines s d isclo s ing lo sses from bad debts co n tingent

, ,
liabilities t h e r a tio o f expen ses a n d profits the gross

, ,
volume of bus iness .

B U IL DING A CREDIT REPU TATION 65
2 .To fix the maturity of y our obli g at ions so that

y o u can meet them promptly when due ; neither to a sk
nor to expect to borrow continuously ; in so far a s po s
s ible to main tain balance s on depo sit in re a so nable pr o
,
portion to the credit s ought .
Th e d
c rei
mp a ap uta ire t t ma y m p yi d bu ui h am a p w fu fi a ul al l
on
of
p m es
n ex er en c ed s n ess en is ol er n n ci t oo and
an I o rt nt
a dh
ss e t in
In g
of
h on e n ee
eren ce t o th e
. S
prIn CIples
c reput a t I n is t h e
o
ere o ut h n ed
res t o f un fa Il
3 . T o avo id overdrawin g your acc oun t When it b . e
come s necessary in emer g encies to do thi s the over ,
d r aft can be arranged for in advance .
4 Never to give checks in exce ss o f your balance s

.
,
even with the und erstandin g that they are not to be

presen ted until tomorr ow or next week ; nor to sen d
check s to di stant points in the expec t ation of making
them good before they are pres e n ted Never to ex .
chan ge check s for your o wn benefit or that of your

frien ds ; never to len d your credit in any manner ,
whether by the i n dorsement of paper o r by goin g upo n

s urety bonds If y o u sh o uld incur such obli g ati o n s y ou

.
,
s houl d at once i n form your ba n k .
5 To show a willin gne ss in yo ur dealings with the

.
,
bank to leave it a fair margin of profit It is wi se

, .
to make your account a s valuable a s po ss ible to the

bank to cultivate the acquain tan ce of the offi cers per
,
s on a lly and to s how a di s po s ition to advance its in
t erc e ts in eve ry fair way .
6 . Never to be too o pt imi stic on the one hand nor ,
e nsh rouded in gloom o n the other ; to c o nduct your bu s i
n e ss with the bank in a quiet and bus ine ss like manner -

.
Remember that a good credit standing is an a ss et ,
a n d o nly proper use and cultivation c o vering your bu si
ness career in its entirety will devel o p thi s ass et t o

b es t .
C o n fi d en c e b e fo r e C r ed i t
HE d in a l virt ue m o st im o rt a n tp
T
ca r
in h
t h e e s t a bl is m e n t O f c re d it is
h
ve ra c it y Ve ra c it y o r t r ut ful n e ss c a r
h p
.
r ie s w it it b y im l ic a t io n t h e p o s s e s
s io n o f c e rt a in c o ll a t e ra l t ra it s w ic h h
a re e s se n t ia l t o b us in e s s s uc c e ss It .
c a n n o t fa il t o c o m m a n d t h e c o n fid e n c e
k h
o f t h e b a n e r , w it o ut w o se c o n fi h
d e n c e n o b us in e s s m a n e ve n t o ug
, h h
p
p o ss e ss e d o f a b un d a n t t a n g ibl e ro p e r
t y , m a y h O pe t o e s t a bl is h
a n d m a in
t a in a p e r m a n e n t b a s is O f c re d it .
P a rt 111
Reso urces Tha t Co un t in Tig ht P la ces

apa i y li k d wi h abu d a ap i al
U SINE SS in c c t n e t n n t c t
u ually g w k B u ful f
, ,
s o es to re c ut re s o rce n e ss O t en
w h p fi f m fi a ial d i u i d p a i ally
.
re n c es ro ts ro n nc e st t t on an r ct c
a u e th u f w ll ba k d pi
,
ss r s e s cc e s s o a. e -
c e e n t er r se .
E v y bu ier h ai i a g ibl fa whi h y u

s n e ss a s ce rt n n t n e c t o rs c o r
re s ou f l h uld fa up d d v l p i u iq u
rce u n e ss s o st e n on a n e e o n to n e
a sse t s P li y ll i g i g ui y
e rs o n a adv i i g t se n n en t an e rt s n
fa y i v iv a ad ma k a t ad
. , ,
t e st , ct o r n en t e n e ss , tr e r r e se cre t ,
a gl d pp t i y fi ld h p ibili y f d fi i
,
ne ecte O or un t or e t e o ss t o e n te
p fi a fu u a a i h h fa
,
ts — td tr ct o n t ot c t o rs
i ually u a h i g
ro on re ns e se an er
whi h l v bu i m
c c e er s n e ss en a re con t n ne rt n
o f ten lv th i ua i wh m y fail
so e e s t t on en on e s.
Th m wh e a b ig m t failu h ugh
an o st rt s co es o re t ro nu
k w u l a d du i d p bl m H h v
no
— n
— n e rn e t es a n ro e s e a s ne er
d v l p d h efi al a f bu i kill d k wl dg
.
e e o e t os n ss e t s o s n e ss s an no e e
up whi h fi a ial u i m a ily a d If i

on c n nc s c ce s s s o st e s re re n
m id a y u bu i m a igh p la h f
.
-
c ree r o r s n e ss c o es to t t ce, t e re o re ,
l k ba k h y —a f bu i
oo c a t t xp e
y hav
e rs o s n e ss e e rt n e ss ou e
b a umula i g l k ab u
ee n cc h p d u iv p w
t n oo o t a t t e ro ct e o er
yu o r p i mb—d i Th
en ter r se a m im
e o es e se a re s se t s o re
p a ha m y a whi h t b b ugh
.
o rt n t t n on e s se t s c ca n no e o t .
E v th enp i ha h g d w i failu ill

e e n t er r se t t as on e o n n re st
h as h a t M
e se v i k w ss e ts v bf o re o e r, t no s a s ne er e o re
ha ai f i p a i mu b ha g d $ ui k
.
t t ce rt n o ts r c t c es st e c n e c
v y i—a f bu i failu g w h f h w
—
.
re co er n c se o s n e ss re ro t or t e ne
e n t erp i p g f h ha d p d bu i all d
r se ro re ss or t e r re s se s n e ss , e
p d up l a i g f m mi ak d p fi i g by h
en on e rn n ro st es a n ro t n t e se
i vi ibl
n s d i a gibl a
e an v m ha up p
nt n e sse t s , e en o re t n on ca
i li i g h a
ta z n p d u ffi a
t e cc e te reso rc e s o n n ce .
C HAPTE R I$
B uildi n g a B us ine ss on Three F igure s

A RL S ON h a d five hun dre d dollars a n d a n idea for
a kitchen cabinet $ S even year s later h e h a d a fi fty
thou sand dollar furniture fact o ry

-
.
Gate s wa s a c l othing sa le sman wh o h a d le ss than on e

thousan d d ollars He invented a scheme o f sellin g cloth
.
ing at a dollar d own $ Within ten ye a rs c redit to the

sm a ll salaried pers on made him a fo r tune
A travelin g s al e sman went into bus ine ss and p aid cas h

f o r small l ot s o f go o ds L ow price s a n d quick turn
.
overs enabled him t o treble h is capit a l in the firs t year .
S even years later he w a s wort h a hundred thou sand .
A printer made partners o f h is chief empl oyee s $ B y

the deduction of small payment s on their stock from
their weekly pay envelopes the bu sine ss quadrupled in
tw o years becaus e o f expert workmanship thu s inter
est ed .
The e men h a d
s —
ideas clever scheme s or poi n ts of
manufacturing o r retailin g or whole sa ling but t hey
—
w ould still have failed had they not d one keen a stute ,
and con centrated fi nancing .
Peculiar money problem s com e to the man w h o wishe s

t o take adva n t a ge o f a bus i n e ss idea who hope s to pro
.
,
teet him self fro m c ompetition and t o build up r a pidly

. ,
70 E ME R G ENC Y F IN ANCING
yet wh o h a s onl y a few hundred dollars capital First .
o f all additional c a pital mus t be fo un d—and thi s mu s t

,
u sually be d one by an appeal t o in tere st or confiden ce

rather than up on a bas i s of s ecuritie s Capitaliz i n g ex .
p e r ien c e,ability o r techni cal knowledge in the line of

,
the prop os ed work is one method B o rrowin g by an .
appeal to bus ine ss and public intere sts a s in the cas e ,
of t h e man who se fac t ory is an impo rt ant aid in building

up the t own is an other way o f s ecurin g temp o rary
,
funds .
Gilbert a New York newspaper man who mad e a

,
fo rtune in the real estate bus ine ss borrowed o n h is ,
b u s ine ss pro s pects .
He noticed that the first fl o or o f a desirable bus i

ness bl o ck w a s seld o m rented because of the forbiddi n g ,
old style exterior He paid eight h undred dollars for

-
.
a quarter s rent o f the flo o r and secured an O ption

’
fo r a ten year renewa l o f h is leas e ; then he went t o

-
an architect had a n ew s to re front de si g ned and cut

,
up the fl o or into s even shop s B y sh owing the blue .
prints to proprietors of small st o res he secured ten ,
ants before the work of remodelling began Money .
borrowed o n lea se s s i g ned by reputable firms paid the

, ,
contractors The income of three s to re s paid the rent

.
a n d built up a s inki n g fund coverin g the cos t o f r e
m odelin g The rent of Gilbert s four remaining store s

.
’
w a s net profit a n d in ten years amounted to twenty

,
fi ve thous and d o llar s With this a s a ba sis h e a dvance d

.
,
to a ss ured succes s in real e state w o rk .
How to Get a $ uic k S ta rt a nd Ma ke Your Mon ey

Coun t on E ssen tia ls
The standard by which the beginner in busine ss is

mea sured is the rapidity with whi ch he builds He mus t
’
.
S U C CE SS F R O M S MA LL CAPITA L
'
71
make every p r ofit chance count without departing from

a plan of economy and wis e spendi n g The cardin al .
rule s which have built up the smal l busi n e ss con s erva

t ively but quickly are ,
1. Gettin g an econ omical s tart by keepin g down the

fixed inve stment .
2. Guarding the income by eliminati n g credits and

watch in g collection s .
3. Makin g capital grow by a shrewd system o f quick

turn overs of money inve sted and by reinve sti n g profits
,
.
4. Protecting finances doubly well by avoidin g every

po ssibility of a diffi cult p o sition until sure o f capital a n d
ability .
Ren ts lea se s and re a l estate buyin g q ue stions o ften

,
mark the line be t ween profit and loss Two P h ila del .
p hi a y ou n g m en he sitated ab o ut e n te rin g t h e whol e s al e
grocery b usiness in their city on account of high re n t s

in the d owntown section When almo st persuaded to .
po stpone their plan s on e of them noted the busine ss

,
activity in an outlying di strict and conceived the idea

o f e stabli shing the s tore in that l o cality The ren t w a s .
o n e fi ft h that o f the d o wnt o wn location

-
but the ide a ,
o f e stabli shi n g the whole s al e sto re in the su b urb seemed
revolutionary The scheme wa s tried however and the

.
, ,
partners met with i n stant succe ss Hun dreds o f retail .
grocers flocked to them to s ave the long haul The two .
partners had sub stituted special s ervice for location and

the difference in rent made their first year s afely prof
it a b le .
L imiting credits and watching collections must be a

prime con s ideration of the small proprietor External .
appearances often indicate the pro sperity o f the ma n

who as ks for credit but h is pro sperity is by no mean s
,
an indication of h is willin gne ss t o pay L o ok up n u .

72
. EME R G ENC Y F I NA NCIN G
f a ilin g ly th e cr e dit s ta n din g f

o th e ma n wh o prop os es
If h is record is bad refus e him
t o p os tp o n e p a ym en t .
, .
The customer lost will be dollars s aved .
For the small man ufacturer the cas h on delivery sy s

tem if diplomatically carr ied o ut le ssens collection costs
, ,
and in sure s payment A printer on the Pacific c o ast

.
kept h is sh op bu sy o n orders which s eldom amounted

to more than five dollars The expens e o f collecting .
s mall bills w a s heavy and creditors frequently p asse d
the printer s account because o f its in s ig n ifi ca n ce To

’
.
get m o ney quickl y the printer followed a scheme o f

a ttaching a bill to each order o f j ob w o rk when it w a s
wrapped for delivery The amount due w a s so small .
that it could be s ettled without dr a ining the cash

drawer and the full paym ent wa s g enerally brought
back by the delivery boy .
E very small bus iness which h a s ach ieved success h a s

4
fo llo wed s ome principle o f quick tu rnover o f capital A .
C hi cag o sale sman who entered the dry good s bus ines s ,
a d o pted a p lan of s ellin g out a ll slow moving s tock to -
west s ide peddlers every S un da v mo rn ing The c a sh .
paid for the j ob lots o f goo d s earned a profit the next

week in the bus ine ss .
The general manager of a chain o f retail s tore s by ,
a scheme o f turnin g over capital attained a ffluence in ,
le ss than a decade He began bu si n e ss in a town near

.
Chica g o and every evening ended the day with a s tudy

o f h is stock Orders mailed o r telephoned to Chica g o
.
j obbers kept the s tore ful l of the goods which were in

eager demand B ecaus e of limited buying the few
.
“ ”
s tickers o n hand repre sented only a negligible frac
ti o n of h is small capital While small orders made it.
imp oss ible to get the lowe st prices thi s lo ss w a s m o re ,
than counterbal anced by repeated profits .

S U CCE S S F ROM SM ALL CAP I TAL 73
B uylight is the first rule laid d own by this mer

,
c ha n t .
“
Find by watching the way good s move over
,
the counter where profits l ie Weekly o r eve n daily

,
.
,
orders to reple n i sh stock are better than shelve s cro wded

with good s that look like s ure sellers in the j obber s ’
s ales r oom but really have no appeal to trade

, .
‘
Watch the salary li st al so Payroll expen se is on e
.
o f the heavie s t co s t s o f a bu s ine ss The be g inner must .
a llot him s elf a f r ugal s a lary and give overtime to the
s election a n d tra inin g o f low priced but promis ing a p

-
pl ic a n ts .
“
and o a k and mah o gany make a store attract
B ra s s
ive but fixture s are not the firs t e ssential of profit s
, .
$ uick turnover o f good s make s f o r fre s h s tock s and

ri g ht prices the ultimate appeal to the c on sumer
— ”
.
How to Min imize Fin a n cia l Ris ks a nd Difiiculties

durin g the I nfa n cy of Your ‘
E n terprise
Arn on g the chief cau ses of bankruptcy are in sufficient

capital incompetence i n experience unwise credit fail
, , , ,
u r e o f others extravagance and speculation

,
— every o n e
a plague upon the small stru g gling enterpri s e More
,
.
than half the chance s of succes s fo r a small busine ss

depend upon its admi ssion that it is weak fi n ancially
a n d mus t protect it self in every fair wa y fro m financial
flurry until capital and stability are a ssured .
“
Jus t a s the begin n er mu st build to windward in
—
every po ss ible manner b y increa sin g h is capital
through every pr ofi t making plan by layin g up a c as h
-
,
r es erve a n d by gai n i n g a high place pers onally in the r e
g ard o f creditor s and cu s tomer s s o h e m us t r ig

,
id ly a v o id
a n d in s ur e a g a in s t every r is k a n d c on tin g en cy S hort .
capital is another term for undertaking too much for —

—
incurring liabilitie s that were unwi e for s ignin g note s
s
74 EME R G ENC Y F I NANC I N G
without mathematical a ssurance that the fun ds wo ul d
come in t o meet them U nwise credit and the failur e
.
,
o f other s brands the small bu s ine ss with attempting t o

,
take the s ame ri sks that the great e tabli shed enterpri s e,
s
fin ds heavy The little bu si n e sse s that have gro wn fas t

.
are ca sh stores L e t the big shop keep it s vault full

.
o f bill s until fas hionable cus tomer s come back fro m

” “
summer and winter trip s s aid a dry good s man ;
, my
capital is small and I have to have a profit on it five
”
time s a year ju st to make a living .
Extravagance and speculation with incompetence a n d ,
inexperience come under the same heading of risk s tha t

, ,
mig h t h a ve b ee n a voided Ju st a s the farsighted mer

.
chant protect s h is a ssets a t t h e start by liberal insurance ,
s o bef o re he launche s into any new phas e of his bu siness
he ins ure s him self by te st that it o ffers an excellent

chance for profit .
Hundred s of small bu sine sse s have been saved by test

ing out contemplated sideline s new selling plan s n ew
, ,
adverti sing devices new delivery methods new account

, ,
ing s cheme s and new pha se s o f the problem o f st o re or

factory help Ign orance o f thi s ru caused the ruin o f
.
l
e
a wes tern clothier wh o after g etting a fair start

, , ,
planned t o profit by dull sea so n O pportunitie s which a

chance sa le sman de scribed to him He in stalled a sport .
in g g oods department but the ability which had mad e

,
him a succe ss ful clothier did not adapt it self to thi s line
“
and he failed H a d he te sted h is idea by catching drop
.
in trade he wo ul d either have learn ed h is mi stake at

”
,
a slight ri sk o r would have acquired by de g ree s the

, , ,
experience which in sured succe ss .
The beginner in the busine ss fi eld will be watched

more clos ely than he rea lize s He will be le ss able to
.
bear financial st r ain than other men but more certam ,

S U C CE S S F R OM S MlAL L C AP I TAL 75
to su ffer it whenever h e take s chance s For the begin .
ner these rule s have been laid down by a man whose

,
p r actic a l s ucce ss h a s covered several lin es

“
Whe n you enter bu sine ss make the mo s t o f your ,
fresh point o f view .
“ —
Reduce each problem to it s eleme t s reject the n on
n
e ss ential .
“
Make swift credit s the ba si s o f your selli n g plan .
Make y o ur collection s not your banker carry your bu si

, ,
ne ss .
“
After go o d goods service is the first e ss en tial to good
,
trade .
The peculia r re spon sibility o f the beginner who would

s core quick succe ss may be summed up in the s e n tence $
More rigidly than any es tabli shed bus ine ss a void risk s , ,
en f
orce eco n o mies, ma k e p ers on a lity c oun t w ith th o se
a b o ut y u,
o k e ep th e fog a wa y fr om y our a cc oun tin g s ys
t em, a n d, a s far as p o ssib l e ,
le t no fi n a n cia l p ro b lem g e t
The se principle s linked with a good
t o y ou un for es een .
,
propo sition have rarely failed o f s ucce ss

,
.
Pe rso n a li t y in B usi n e ss
E R S O NAL ITY is t h e c ie f fa c t o r h
in b uil d in g a b us in e s s , b e c a us e
p e r so n a l p
o w e r is t h e s t r o n g e st b o n d
b e t w e e n m e n , a n d a un ifi e d o rg a n iz a
h
t io n is c ie fl y t h e re s ul t o f t a t s a m e h
p o wer — p
e r s o n a l it y .
— Georg e H B a rbo ur
L .
C H APT E R $
H a ndlin g F in a nce s in a Pinc h

ONE S a clerk had saved some m oney He decided
, , .
to s tart manufacturing ice cream in a large eas tern

—
city There w a s competition fi er ce competition but
.
—
he had a plan which he thought would in sure success .
It w a s to e stablish a reputation for a b so lute purity a ,
quality which recent expo sures had shown to be s trik

in g ly ab sent from the product o f competing fi rm s .
Jone s enterpri s e w a s succe ss ful from the s tart H is

’ ’
.
reputati o n grew fa st H is name alone came to be con

.
s id er e d a guarantee The bu sine ss so exceeded h is a n

.
t ic ipa t io n that although he w a s an un us ually hard

,
headed bus ine ss man he made the fatal mi stake o f in

,
ve stin g too much in machinery and fixed improvement s ;

that is he stretched h is credit t o o far for slow re t urn s
,
.
The cold weather came earlier that fall than us ual .
Jone s busines s fell off He had a large plant ma

' ’
.
,
chinery and other a ss et s but they were n ow o f little

,
value a s s ecurity H is credit situation became de sperate

.
,
and on e day an o rder for goods failed to come The n .
c a me a period of emergen cy financin g and a s earch for

credit .
One even ing ea r ly in November he reviewed the sit

, ,
n ation with h is wife .

H ANDLIN G FI NANCE S IN A PIN CH 77
We must get s ome money he said o r our busine ss , ,
career is over B ut I don t know how we c a n do it I

.
’ '
have ca shed already o n everything I have ”

.
“
Well try B rook s A sk him what our tra demark is
,
.
”
worth .
“
B rook s $ He would be glad to celebrate my b ank
”
r upt cy .
knows better than an yone el se just what o ur

B rook s
busine ss is worth He w o uld give a good deal to g et it
. .
We are facing bank ruptcy He knows it a s well a s we .
do I think he would con sent to a loan if he thought

.
‘
he had a chance to g et our busine ss If we get the .
mon ey we can substitute winter catering for the ice

,
cream we can t sell We can use our reputation that

’
.
”
way .
B rooks w a s surpri s ed on e day t o s ee h is chief c o m

petitor enter h is o ffi ce
We had a hard fight last summ
.
“
er ”Jone s be g an , ,
and a s y ou know I m about at the end o f my rope

, ,
’
n o w B ut I have a pre po sition lend me

.
— un til
Janua ry 3 0 th at ei g ht per cent I will contract in de
$
.
,
fault o f payment to surrende r to you my trademark, ,
bus ine ss and good will If I pay you los e n othing If .

,
.
I don t I quit the busine ss and you head the li st

’
,
”
.
B rook s thought a while He had followed Uon es ’

.
financial situation He w a s sure that Jone s could n o t

.
pay the note when due ; that if he did not accept the
o ffer on e of the other competitors would and that he
, ,
would s u ffer from comp etition agai n a s he had during

the previou s summer He k n ew nothing of Hones plan .
’
t o sub st itute a n ew line He granted the loan . .
With thi s money J one s adapted h is place s o f busi

,
ness to the maki n g and s ale of refre shmen ts that are

in demand during the winter m o nths He took a dva n .
78 E ME R GENC Y FINA NCIN G
tage of hi s reputation a n d the Chri stma s shopping ru sh .
B rook s loan w a s paid when due In the sp r in g t h e

’
.
o l d ice cream trade revived Jon es paid hi s creditors

. .
He h a d pa ss ed the danger point .
When you are in need o f mon ey remember that it is ,
not what y o u think your ass et s are worth but what ,
others think they are worth that count s You may , .
know that y o ur stock is valuab l e but everyone may n o t , .
You mu s t be sure that the pers o n you as k fo r a loa n
on that security knows something about it R eg a r d y o ur .
a ss e ts fr o m th e l en d e r s p o in t of view
’
It is the only .
way to g et the mos t from them .
Temporary fi n a n cial di fficultie s are due

1 To mi smanagement
. .
2 To lack o f fi n a n c ia l kn ow le dg e
.
‘
3 To general fi n ancial stringen cie s or panics

. .
4 To cro p failure s or other natural caus e s

. .
5 To lack o f sufficient capital

. .
Y o ur ability to deal with the s e s ituati on s depends

up o n y o ur re s ourcefulne ss — your ability to us e what you
have t o be st advant a ge Tangible as set s are mo st g en
.
e r a lly appreciated Intangible a ssets are often over

.
l ooked I f you have an e stabli shed bu si n e ss good will

.
, ,
future pro spect s a trademark life in s urance a lea se on

, , ,
a go o d building pers onality character experience rep

, , , ,
$
ut a t ion publicity knowledge o f market s — any o f thes e

, ,
may save y o ur bus ine ss— and the lis t is far from ex
hansted .
H ow a Te
rn po ra ry F in a n c ia l Difi iculty
’
Wa s Over
come by I n crea s in g P r oductio n
A large pian o hou se in a s outhern city dari n gly e n

la r g e d its b u s in e ss T h w n e r h.a d a l w aes fion a n c e d v
care fu ll y O n this o ccas ion h owever he a d m i t t e d th at

.
, ,
H ANDLI N G FI NANC E S IN A P I NC H 79
he had extended h is b us i n e ss beyon d h is capital .
O n e day he a n d s ome of h is a s sociate s went over their

s ituatio n They made a complete li st of their a ss ets and
.
t heir liabilitie s They were careful to note just h ow

.
much money they would have at every given time In .
n inety day s s everal large note s were due

,
They s a w .
that they would not have enough money to meet their

obligation s .
The firs t plan su g gested wa s to increas e s ale s The .
fi rm had however anticipated high s ale s in makin g its

, ,
c alculation s a n d it could not s e e h o w without adopti n g ,
s ome e nti rely new s cheme s it w o uld be able t o cover the

,
d eficit .
After repeated conference s and a week of c ons idera

t io n the pres ide n t o ffered a s olution
, .
“ ” “
I have a plan he said We ll start publi shing
,
’
mus ic again Thi s line never made large profits and had
.
to be dropped to enable us to care for our heavy trade

in in strument s but we still have the plates which
, ,
caused our greatest expen se We can us e s ome of them

.
a gai n ,a n d the margin o f profit should thus be in

crea sed We have a li st of high grade customers wh o
.
-
would g o m fo r an e dition de luxe We will put o ut .
adverti sing and sel ling te st s at once On the s ecurity .
o f the firs t s ucce ss ful test we can get two volume s

,
printed We can deliver the se volume s in ninety days

.
and get on e half o f the co st of the books a s the first

-
payment The profit on the deal will cover the note s

. .
When the s econd payment is made we will have en o ugh ,

”
money to pay for the publi shi n g work .
The pl a n w a s carefully con sidered Te st advertis e .
ments were r un in leading paper s so that the fi rm w a s

able t o e stimate the demand for the edition The idea .
w as finally adopted and proved succe ssful .

80 EME R G ENC Y F INANCIN G
A g ain in thi s cas e it w a s only the ability of one o f
,
t h e members o f t h e firm to unders tand the situation and

se e what c o uld be done with it s a ssets The plate s had .
practically no value a s s ecurity ; n ot a cent could be bor

rowed on them B ut there w a s a way to realize s ome
.
thin g from them ; it w a s a ques tion of knowin g how .
Pers onal re sourcefulne ss is only a name for busine ss

j ud g ment and knowledge o f financin g It is n o t a .
—
method of getting capital in itself capital cannot be
conjured o ut o f the air it mean s ability to se e what
—
y o u have and ability to use it .
The owner of a canning fa ctory whos e busine ss w a s ,
lon g es tabli shed and who se name repre sented years of

trade building faced a liquidation A note for
,
.
w a s due. The company coul d neither meet its obliga

tions nor s ecure an exten s ion .
The manufacturer went to on e o f h is large st creditors .
He spoke without any appeal to sympathy He pres ented .
a purely bus ine ss propo s ition .
“
I have a note com ing due this week he sa id I , .
w ill either have t o meet it o r liquidate My bu sine ss .
h a s g ot into a bad hole s olely through tha t failure of las t

,
year s crop s The pro spect for thi s year is good My

’
. .
product h a s a rea dy market If I a m obliged to liqui

.
date y o u will lo s e a s well a s I My trade is e stabli shed

,
.
and is worth more than all liabilitie s but it is about ,

”
to be s acrificed .
The creditor made a complete inves tigation o f the

bus ines s o f the factory He arranged for a co n ference
.
with several other creditors They decided to have the

.
n o te extended to avoid the l iquidation .
These mon ey diffi cul t ie s were ov er come by abili t y to

cash on inta n gible or apparently wo r thle ss assets a —
t rade name coveted by a competitor apparentl y ob solete ,
AN DLI N G FI NANCE S IN A PIN CH
H 81
property in the f o rm of electrotype plate a reputation s,
and future elling pro pect which held for credi t o r

s s s s
a warranty o f payment .
Many firm s which liquidate are solvent ; except wher e

the bus ine ss h a s been gro ssly misman ag ed knowledge ,
o f fi n ancing could almo s t alw a y s s ave them There is .
o n e pri n ciple which hold s good in every cas e It c on .
cern s fore si g ht and forethought making the most o f

,
ass ets di scovering hidden re source s ability to appro

, ,
c iate the value the s e a s set s have to others o r in what ,
w a y they a re o f value and a bility t o us e them acc o rd

,
F a c e t h e C r i si s
HE N t h e c ris s
i ha s co m e ma n y
,
a b usin e s s m a n ha s h
l o s t h is e a d
a n d g o n e un d e r a l t h o ug h c o ur a g e
, re ,
s o u c e ful n e s s a n d a s h re w d p l a n o f c a m
r ,
p g
a i n w o ul d h a v e c a r r ie d h im t h ro ug h .
R e s o urc e ful n e ss m e a n s a b il it y in d is
c o v e rin g n e w s c h e m e s t o in c re a s e in
co h
m e o r c re d it , t o fi n d idd e n a sse t s ,
p
a n d t o c a it a l iz e a s s e t s t o a d v a n t a ge .
C H APTE R $ I
Ho w to Ma k e a Fre s h St art
a ft er F a il ure
HEN one evenin g the final f o rmalities in ban k
rupt cy had been concluded White a mac hine ry
, ,
manufacturer of the middle wes t closed h is desk put , ,
h is feet o n the table and medit a ting lit a cigar

, , .
B it by bit he put t o gether the s t o ry of the pa st ei g ht

month s When he had sta rte d he h a d invested all o f
.
,
h is money in h is factory Raw goo ds needed were

.
bought on credit and b e b o rrowed from bank s to m eet

h is payroll . H is liberal term s t o j obbers had flo o de d
h is plant with orders . Then in s pite of prospects fo r a
,
money making future h is creditors had grown m om

-
and clo sed in W hite attempted to collect from h is

.
cus tomers to meet h is bill s but o nly a few of them were

,
able t o pay in le ss than s ixty d a ys The time was .
twice to o long He had a ss ig ned

. .
“
If I only had had more capital he mused ; but ,
then recalled that when he had o pened for business

“ ”—
h is capital had s eemed ample Ample
.
y e s th a t ,
—
w a s exactly the trouble h is s upply of money had
s eemed more than enough to meet eve ry demand It .
had s eemed un n ecema r y t o limit h is credit s either in

am oun t o r in time ; in deed it had s eeme d g o o d mana g e
,
82
R E CO V E RI NG F R OM F A I LUR E 83
ment to give extra i n ducemen t s to buyers in o rder t o

fill h is pla n t with orders and set at work the ample
capital in hand .
A s he meditated h is mi stake in fin a ncing took on

,
thes e defin ite outlines and reform s which would have

,
s aved the bus ine ss s prang to h is mind .
“
I coul d make good if I were back three months ,
he c oncluded “
. H ow can I get another chance ?
”
B efore he left the o ffi ce that night he h a d s ketched

o ut a plan of reform a n d r eo rganizati on First he .
,
n o te d down the main factors in h is former fin a nci a l

policy challenged thos e which he n ow c on sidere d da n
,
gerons and indicated the change s he h a d determined

,
up on Next he formulated a s cheme for c ollectin g from

.
h is slow pay c ustomer s The se evidences of having

.
learned from h is s evere fi nancial experien ce he deter ,
mined t o put befo re h is bankers and creditors .
At the end of three week s he had collected enough

conclus ively to demon strate the genuine value of h is
acc oun t s receivable Thi s showing together with h is
.
,
plan o f reorganization and the opportun ity to s ecure

h is exclus ive financial patronage induced o n e bank t o
,
advance the sum s White needed to re sume bus iness .
The bank al so influenced the other credito rs to pos t

pone foreclo sure awaiting the outcome o f the n ew ven
ture B usines s w a s re sumed and by gradual g rowth
.
, ,
with the c oooper a tion of the bank a n d creditors ,
achieved succe ss White had solved the difficult prob

.
lem s o f finding new capital ; of analy z ing h is failure

and correcting h is mi stake ; o f getting a new credit
chanc e through frank acknowledgment of h is errors a n d
definite evidence that he had profit ed the r eby ; and ,
fin ally o f building upon h is shattered credit a new a n d

,
enduring reputation for business s oundne ss .

84 EME R G ENC Y F I NANCI NG
Ninety fi ve per cent o f bus ine ss men fail Of eleven
-
.
.
th o usand failure s a s li sted by on e o f the lar g e mercan

,
tile agencie s o ne third were due t o l ack o f capital In

,
-
.
c o mpetence the s econd cau se h a s practically the same

, ,
sum o f failure s traceable t o it I nexperience unwi se .

,
credit c ompetition fraud failure o f others ext ra va

, , , ,
gance and specul ati o n were o ther l isted reas on s why .
men were compelled t o cl os e up sh op .
A majority of the failure s step b a ck t o the rank s

fro m which they ro s e Many o f the m might have r e
.
s umed had they analyze d the cau se s o f their d o wnfall

,
and profited by the experience Ma ny o thers might .
have rebuilt in m o nth s where it h a s taken years had

, ,
they learned how t o handle every financial factor with

a ma r g m o f s afety b ut with expert e f ,
fi ciency in pro fit
making .
S tudy o f the careers that have built succ es s o n bank

r upt cy is a financial educati o n Ro gers a fact o ry he a d
.
, ,
foun d afte r failure that h is product had cost an un

se en fifth m o re than he had anticipated He had s old .
g oo d s st eadily at a l o s s After challenging and

. tight
o nin g up h is sy stem of c os t acc o unting he pro spered ,
.
S teinfeldt a hardware retailer b ought a carlo ad of

, ,
s t o ve s too expen s ive f o r h is trade S tudy o f the reta il .
s ituati o n and eform s in h is buyin g mende d the fabri c

r
o f h is busine ss Gregg a cigar man w a s force d out o f

.
, ,
h is l o cati o n when the buildin g w a s t o rn down t o give

p l ace to a sky s craper H is cu stomers failed t o fi n d
-
.
him in his new location and he w a s force d t o the wall .
B y takin g h is book s t o h is banker h o wever by dem , ,
on st r a t in g the un a voidable nature o f hi s handicap an d ,
by producin g a n o ption on a sh o p in the new buildin g ,
h e g o t suffi cient supp o rt t o res ume bus ine ss .
Re build in g in each o f the s e cases wa s a pr o blem

R E CO V E RI N G F R OM FAI LUR E 85
( )
1 of financing ; ( 2 ) f goo d bu ine m nagement
‘
o s ss a .
E ach man shrewdly analyzed the c ause s of his failure

and adopted definite plan s o f refo rm With thi s evi .
dence that they had learned that they h a d the pers i st

,
ency and the integrity to face o ut the situation they ,
took up the problems of getting more m o ney and r e

e stabli sh in g their credit s tanding .
Where to Go f or Mon ey w ith Which to Try A g a in

a ft er F a ilure in B usin ess
H ow may the bankrupt enfeebled financially by ,
s ome apparently unavoidable catas tr ophe o r beaten

down by the result s of h is o wn faulty financin g get ,
the funds and th e chance t o try again ? Practice indi

cate s two classes o f re sources that remain after failure
1 . S ome fragment o f credit s o me confidence which
—
still exi st s in the mind o f a banker cre dito r o r private ,
inve stor .
2 . New cre dit and c onfi dence which the a ssi g nee may
e stabl is h in the mind o f someone by a fran k presenta
tion o f h is ca se indicating an unavo idable cau se o f
,
d o wnfall or m as tery o f the business f o rces that f o r

merly overpowered h im .
White s remaining re source w as the interes t h is cred

’
it o rs had in him becau s e they believed that eventually

they would get their mon ey back and becau se h is col
lecti on s strengthened this belief Gregg s remaining .
’
credit depended upon the security and the profit chance

repre sented by h is o ption of de si r able st o re sp a ce in
the new building on h is old corner .
Credit may be had o n the bus ine ss pr o sp ect s tha t still

r emain after ba n kruptc y
; confidence remaining o r r e
e stabli shed in the minds of acquaintance s ma y induce

n ew p a rtne rs o r s tockholders to contribute fres h cap
86 EME R G ENC Y F I NA NCIN G
ita l . Awith determination rapidl y to regain foot
ma n
in g lo st by bank r uptcy look s for tho s e who se intere s ts
are h is own and who have mo st t o gain or los e in his
s ucce ss or failure The problem re sembles that of t h e
.
s ale sm an ; to make your applicatio n for additional fun d s
attractive through all po ss ible profits appeal s a n d con ,
ces s ions is t o fi n d the ans wer Even whe n obvio us .
s ource s of money have been tried in vain possibilitie s ,
o f new capital may be located by checking over eve r y
individual and corporate intere st concerned with your

enterpris e .
Parker a manufacturer o f machinery in the middl e

,
we st confronted a problem which viewed fro m any

, ,
angle seemed impo ss ible Fire destroyed h is plant and

,
.
the in surance money which under ordina ry circum

,
s tance s might have been s ufficient w a s eaten into by ,
living expens e s d urin g a l ong peri od o f delay in r e

b uildin g .
Every poss ible item o f cre dit s eeme d t o h a ve been

exhau ste d in an attempt t o avert the crash When he .
emerg ed fro m receiversh ip all u sual source s of capital

s eemed cl o sed to him B ut t o the l as t he had given
.
employment to h is men and they n o w evidenced their

,
loyalty to him He determined to appeal to them fo r

.
temp o rary fun ds He spoke to them of the mutual in

.
t e rest o f ma ster and man ; he pointed o ut the pro spect

of s teady employment and the advantages o f staying
in the little city where they owned their home s remind ,
in g them that each would lo s e hundreds o f dollars if

forced t o sell o ut and s eek employment el sewhere H is .
workmen were not slow in reali z ing that thi s indu stry
w a s the backbone o f the town All volunteered to a o
.
cept half wages for a short period and many advanced ,
s mall sums fro m their s avin g s accoun ts a t o rdina ry

RE CO V E RI N G F R OM F A I L UR E 87
intere st The few thou sand dollars so secured enabled

.
the manufacturer to bring h is finance s under con trol .
H ow to Reesta blish Your Credit a n d B uild up a Rep

a la tion f
or S oun d B us in ess Judg men t
With m oney at hand for reorganization every da y ,
in the years that follow brings a n ew the two fold prob -
lem o f enforcing reform s that safeguard your bu sines s

from failure especia lly at tho se points previou sly left
,
open and o f developing the sort of reputation which

,
give s greates t stren gth in financia l operation s .
A grocery clerk having bought out an e stablis hed

,
business in a town on the Great L akes attracted favor ,
able attention by h is aggre ssive campaign to secure new

customers S hortly however h is unpaid bill s for goods
.
, ,
reached a total which ala rmed h is creditors He s eemed .
bewildered and unable to fi n d ready money ; h is credit

o r s clos ed in and he a ssigned
,
.
The a ssi stant credit man in one of the wholesale

house s came to aid in h is s ettlement and at once showed
the grocer that lax collection methods had trapped him .
“ ” “
Do you know said the grocer I have puzzled
, ,
my head o ff over how to get in the money due me I .
am a s ale sman but no bookkeeper If you would put

, .
in e n ough money to get the bu si n ess o n its feet and

would take charge o f the accounting and collection s end ,
”
we could make things hum .
A partnership w a s form e d with limited credit firm ,
con trol o f expe n s e s and modern collection facilitie s .
E very po ssible dollar w a s pu t into quick selling stock .
Record s were kept to i n dicate the best seller s and ,
within a year all debt s h a vm g been cancelled a small

, ,
re serve w a s e stablis hed a g a in st c on t in g en cies Of chief

‘
.
importance h owever w a s the fact that in this sho r t

, ,
88 EME R G ENC Y F I NANCING
time t h e co n cern had b ecome widely known for the
precise bala n ce which exi sted between its selling force s
a n d its admini strative factors The credit of the firm
.
,
be smirched by failure had quickly been cleared and

,
accord ed a h igh s tanding among bankers and whole

s alers
.
Failure challenge s over again thos e principle s which

underlie correct m anagemen t in any bu siness whether ,
in the supply and i n vestment o f the capital in the ,
s oundne ss of the propo s ition and the location of the

plant in the handling of expen ses and credits in the
, ,
a ssurance of profits o r in protectio n again st the future .
To build a new credit reputation demands ob servance

of these principles so strict that the keen scrutiny o f
creditors shall be s atisfi ed The busine ss man who n u
.
d e rs t a n ds the bas i s of finance will therefore make h is

new beginning con servatively keeping to a familiar ,
bus iness and under ordinary circumstan ce s to a famil

, , ,
iar locality With correct practice and s ound gradual

.
,
growth time will be s aved in the reorganization and

, ,
mo n ey made .
Pe rm a n en t C r e di t
R UE dit i b uil t
c rely t h s on ro ug h
p
fa ir re re se n t a t io n T is is t h e
. h
h
c re d it t a t s t im ul a t e s in d us t ry , in s ire s p
c o n fide n c e , a n d c re a t e s a e a lt y a c h h
t iv it y .
— H en ry Clews
C H APTE R $ II
Do n t s in Mo ne y Mat t ers
’
GNORANCE of m isuse o f cre dit c aused

fi nanc in g an d
the failure o f a large drug bu sine ss in a western “
city To e st ablish the bu sine ss the proprietor secured

.
,
a loan o f five thous and dollar s from h is banker on a

promi ssory note It w a s not a cons ervative loan The
. .
banker gran t ed it on the strength of the druggi st s ar ’
gum ont and becau se he hoped to build up a g o od n e w

,
account The drugg i st al so secured an ad di tional

.
from another bank on the ba s i s o f a fa vorable lea s e .
—
This gave him ten thous and dollars c a sh money bor
rowed entirely on h is per sonal qualitie s and o n h is
busine ss prospects .
He s tarted h is busi n es s with a splurge A t firs t s ale s .

'
we re heavy S hortly after the opening however a

.
, ,
s lump came B ecau s e o f the falling o ff in trade he

.
,
moved to another s ection of the city B y doing thi s he .

,
s acrificed the in itial adva n tage o f low re nt de stroyed ,
the security o f the second five thou sa nd dollar lo a n ,
and shook the confidence of h is banker by thi s c on fes

s ion o f bad judgment Althoug h sa le s i n crea sed the
.
,
climax soon came The enterpri se w a s like a n inverted

.
pyramid and a l ittle pre ssure from cre dit o rs made it

,
t opple over .
90 EME R G ENC Y FINA NCIN G
The first nece ssity in a new business is to un ders tan d
fully the nature o f the di fferent s ources o f ca pital The .
m oney the druggi st secured should have been pb t a in ed ,
not from the bank but from h is own funds or from a

,
partner from a n i ssuance of stock or from l ong time

, ,
loans B y pers uading the ban ker to viol a te an estab

.
lish e d banki n g policy he compa ssed h is own failure A s

,
.
a las t mi take he ruined h s credi t s tanding

s ,
i — h is only
a ss et— b y allowing the s pread o f the bad impre ss ion
m ade by h is mi sjudgment in regard to h is l ea se .
To mi stake the n ature o f money obtained from dif

feren t s ource s is to invite failure Try to avoid s hort
.
time l o a n s unle ss protected by quick a ss ets Do not put

.
bank money into fixed improvement s Reserve your .
b ank accommodation for sh o rt time need s Moreover .

,
you should keep y o ur outlay within your capi t al If .
y our capital is small start small E stabli sh your credit

, .
by maintaining a policy of con servatis m and financial

s ecu r ity
. Too much capital inve sted in fix ed improve
ments ; unwarranted expan sion ; stretching credit ; ex
tending too much credit to cus tomers ; failure t o keep
an e fficient check o n the busine ss are the ch ief diffi cul
,
ties in financing any bu sine ss Ability t o recogni z e

.
thes e d a ngers a n d to profit by the expe r ien ce o f others

,
are the safe g uard s that the succe ssful bus in ess m a n will
cul t ivate .
An average of more than failures a year in

the U nited S tate s are a scribed to in suffi cie n t capital .
In mos t of the s e ca se s the fault is not so much a lack

o f capital a s the folly o f going beyond capital .
A competitor entered the field o f a merchant in a

small we ster n town . The old e stabli shed merchant w a s
not so much afraid o f lo sing h is trade a s o f seein g the
o ther ma n have a bigger store .
“
I m g oing to b eat
’
DO N TS
’
IN MONEY MA TTERS 91
Jone s, he boa sted to h is friends With this en d in .
view he s tretched h is credit a n d unable to meet bills

, ,
d ue his bus in es s c ollapsed

,
H e h a d fa il e d to se e t h e
.
danger sign a l .
— —
Nece ssity a n d that alone should underlie expa n
s ion
. W hen a bu sines s is thri vi n g and cu stomers are ,
clamorin g fo r more goods than can be sold or manu

fa ct ur ed co n veniently or for greater variety th a n pres
,
ent faciliti es a fford then is the time to let the plant

,
broaden out if capital c a n be had .
H ow E xten din g Too M uch Credit to Cus tomers Ties

up Ca pita l a n d I n vite s F a ilure
U nwi se c re dits are s eldo m rec og nized until t oo l a te .
Over accommodating buyers h a s the same re sult a s

-
growin g t oo fast o r over buying Two young men em

,
-
.
barked in the shoe bu sine ss in a small e as te rn city .
Their capital w a s small but trade began t o come t o the

,
s tore from the day it w a s ope n ed and it w a s ju st the ,
kind of trade they had W i shed for It included forty o r .
fifty o f the bes t familie s in the city Accounts were .
s tart ed and the store s oon had out s t a nding amon g the
bes t families about two thous and pairs o f sh o es .
S ince all their capi tal had been u sed up in the ori g
inal inve stment the out sta n ding account s were a s erious
,
matter They knew that they could do nothing to col

.
lect from the wealthy s low pay cu stomers except t o -

,
keep sending them bills and wait until they remitted .
They knew that many of their cust ome rs were in the

.
habit of going away for the summer and that they migh t
have to wait from three to six month s for the money .
The firm s truggled along fo r s everal months and ,
then pre ssed by their creditor s and unable to c o llec t

,
f rom their debtors among the rich ass igned ,

.
92 E MERGEN CY F I NANC I N G
The unwi sd o m in thi s part icul ar cas e lies in al low
ing any credit at all on such sm a ll capit al With the .
money they had on hand the young men should h a ve ,
confine d their business to an a ctual cas h bas i s .
The influences which a r e con stantly operating t o in

duce a firm to make un w i se credits are p owerful and ,
they s h ould be all the more carefully guarded again st .
Do not grant credit when you have i n suffi cient capital .
If you do extend c redit arrange with your suppliers

,
beforehand for long time credit on the bas i s o f your

credit bus ine ss B ut in n o cas e should credit exceed
.
o n e third of your worki n g capital

-
An exce ss o f credit .
granted t o cust omer s not only puts a bus ine ss in a dan

g e r o us po s ition from want o f ready fund s but it al s o ,
impairs your credit s ta ndin g .
How I n dulg en ce of the B orrow in g Ha bit Ma y B e

a Ca us e f
o F a ilure
and most c o ns tant temptati o n c onfro nt
Th e g reate st
ing a veteran whole saler in New York h a s been the
impul s e to run to the bank for a loan at eve ry s ig n of .
financial shortage B orrowing is advi sable only when

.
it is nece ssary It is o ften s uch a simple matter t o s ign

.
a promi ss ory note that thi s borrowing habit become s

a real danger if not kept in check .
Once thi s whole saler thought it imperative to bo rrow

ten thousand dollars He got the mo n ey without the
.
s lightes t trouble When he returned to the o ffi ce he

.
,
opened h is ledger and sa t for ten mi n utes looking at

the entry Trade condition s were n ot bright He looked
. .
a head s ixty day s and wo n dered if he would h a ve ten
thou sand dollar s to spare when the note s came due .
The next morn ing h e took up the note a s s oon a s the

b a nk opened . He w a s convinced that borro win g h a d
DON T S IN MONEY MATTER S
’
93
become a habit and that in this ca se it w a s un nec essa ry .
He put the s crews on h is collection department a n d ,
got up a serie s of letters to h is s ale smen asking for

their co operation in bringing s ale s up t o a cert a in
figure during the next sixty days o ffering a special ,
b onus for re sult s In thi s way he made s olid develop

.
ment replace a make shift financial meas ure .
When you have once e stabli shed your credit guard ,
against the borrowin g habit It is like the drug habit .
it gro ws with indulgence When y ou are threatened .
with a s tringency i n stead o f s tretchin g y o ur credit

, ,
follow a p o licy o f entrenchment Lo ok for leaks the re

— .
s —
are always leak s in every bu ine ss cut expense s in ,
crea se sale s If p o ssible acquire a s urplus to meet

.
,
thes e conditi ons .
A voidin g Future Mo n ey Troubles throug h Kn owledge

of F in a n cia l Rules
Kn owin g wh a t not to do is often a me a n s o f kn owin g

what t o do B ank r upt s failure s down and outs h a ve
.
“
,
”
,
- -
l earned the s e don ts but at the wrong end of their

’
,
b u sine ss careers Financing a bus ine ss is like climb

.
ing a cl ifi The step s are many and diffi cult The bes t
. .
s afeguard is to know the slippery place s .
D o n t mi stake the nature o f the di fferent s ources o f

’
capital If you want capital for establi shing your

.
business take in capital either by i ss uing stock by n o

, ,
g o t ia t in g an individual long time accommodation or by

-
admitting a mon eyed partner Us e the bank e specially .
for the eve r y day needs -

.
Don t stretch your credit to o far S ecure credit in

’
.
relation to the amount of your quick as set s B e sure .
that you can meet your note s then sign them , .
Don t mi sus e your credit Guard again st the b o r

’
.
94 E MERGEN CY F I NA NC I N G
ro wing habit Meet obli g ati o n s promptly when they
.
are due Don t overdraw

.
’
.
Don t misreprese n t facts in your stat eme nts or in

’
con vers ation with your creditors .
Don t take partners or large s t ockh olde rs without

’
tes ting them as to their ability a n d ch a ra ct er P repare .
in advance for the contin gencies that ma y ari se .
Don t neglect details that a ffect y o ur cred it s tanding

’
.
Keep y our st o ck f ully ins ured Deal courteo usly with .
your empl oyee s and with your custo mers Do n o t over .
s tock
. Keep your goods well di splayed B e progressive . .
Don t g et dis couraged when the bus iness g ets into a

’
tight pinch In g enuity re sourcefulness energy have

.
, ,
carr ied bu siness men through di ffic ul ti es g reater th a n

any met in the o rdinary course o f bu sine ss Your chief .
sa feguard lie s in the records y o u keep a n d y o ur a d
vance kn owledge of financial requirements .
Remember that con sciou s attention to the eve ry day -
“
uses of capital and credit pers i stence in following t h e
,
”
rules,
and avoidan ce o f common dangers dete rmine ,
the s afety o f your bus ine ss and the chara c ter of your
ledger ba l ance .
G o S lo w ly
HE b usin e s s h o use s a re
s uc c e s s ful
t h o se t h a t h a ve g r o w n sl o w ly a d n
fro m t h e ir p ro fi t s Th e y h a ve l im it e d
fi x e d in v e st m e n t s gua d e d t h e ir c e d it
.
, r r
s t a n d in g a n d p ro fi t e d b y t h e e xp e i r
en ce of ot h e rs .
K eepin g M on ey a t Work
DLE w km d aw u a d wag ill di t d
w k d aw half pay M y i a w kma
or en r ne rn e es ; -
rec e
or ers r -
wo n . on e s or n
hal t .
Th e v ffi ma ag t k p
c e l er d fa t y o ce n e r, s o re ee er an c or
f a pla d ha h fu u w k f v y mpl y
o re m rt t t
p d w ll di d mi i d
n n an c e re or o e er e o ee
so ha i may b u i
t t t e n n t erru te e r ec t e n s t e re
by v y v i — a ly p fi abl Th
, ,
to e er con e n e n ce c o n st n t ro t e o se
w h ha dl m y mu x i h m f igh t
.
st t t$
mu t b k p wi ly bu y
o n e on e e e rc s e e sa e o res o
b p du iv fi a
e ro ct e, n n c es s e e t se s .
Y mu t mpl y m m y t ha y
ou st n o d l e o o re on e n o u n ee e se
h v idl fu d y u xp a u y mu
,
y ou a e e n s on o r e e n se c co n t; ou st
n ot empl y l l y mi pp u i i d fail ou o rt t to
m d m d C a h i ha d i t h fi al uli g
o es s , e se ss o n es an
ee t e an s s n n s no t e n r n
fa i bu i I mu t b h i d d ha dl d wi h
.
,
ct o r n s n e ss t s e re an n e t
f igh d d mi a t p al f D iv y u i
.
t
m t bill O u li
o re s an o n n e rso n o rce r e o r n
v m E l i fu d ah ad
.
est en t n st n s e to ee s t ne
w k i adva f h u plu fu d ha ai a
. .
t t t c e rt
b i g K w h w k b f y u fu d d mak y u
or n n ce or e s r s n s n se so n s
r n no t e or e o re o r n s an e o r
ap i al p du
.
c t ro ce .
If y h av fu d b y d y u p
ou t d fa m h m t
agai fu u d ma d y w uld xp w km
e n s e on o r re sen n ee , r e
o ut n st t re e n as ou o e e rt or en
i dull im w uld wa h h w k f y u
,
A y t ou tc t
mi i m y ma
n e s. s o e or o o r
m wa h f l
en , d tc or osses a n e co n o es n on e t t e rs .
Fi a will p v adap abl t l wh y u pla

n n ce s ro e an t e oo en o r ns
k p y i u h wi h y u fi ial di i ha
,
ee ou n to c t o r na n c con t on so t t
im df th ugh may g p uig d ui g
,
t e a n i o re o t o n to ro c r n an s n
yu m y
o r one .
l
l
fi c
i
n k w l dg
t e fo re n o
-
a rt s a n d r
fi e
s
a m
e of ay
c
n h a
ct
d by i
n ces
re
mi d
bmy hh d k gfiaaph i whi mah pi u v my d y aimal imp a mpa h
De a m be
on e t t e rs
te
By
ze st te e n ts , o r
c lev e r use o f t ese
vd aga
.
et o s een n n c ers ke e er et and ort nt co riso n

e i en t a t l n ce
C H APTE R $ I II
Pl a n nin g to Meet Yo ur Bill s

IL S ON ,ha rdware merchant in a smal l western
a
town had laid in a large stock o f di shes that he

,
could not sell At one time partly as a re sult of this

.
,
purcha se he fo und him self in a difficult s ituation He

, .
had only thirt y days in which to meet a large sum of

o bligation s A s he looked ahead he s a w that h is b es t
.
,
chance w a s t o clo s e out h is stock of dishes He knew .

,
however that no ordinary s al es scheme would suffice

,
.
He could adverti se a bargain sale but h is li n e w a s n ot ,
big enough t o draw bus ine ss from the countr y and the ,
ordinary bargain sale had been adverti sed until it had

l o st all mean ing H e ado pted the followin g plan
.
He went to all the me rcha n t s on the main street o f

the town and propo sed a gene r a l town stock clearing
s ale
. He propo s ed to r un a full page adverti sement in
all the paper s of t h e territory o ffering to refun d inter,
urban fare s to customers who b o ught goods up to a cer

tain value The space w a s to be divided equally among
.
all the merchan t s In thi s way the country people who

.
,
were bu sy with their crop s would be attracted to the

,
s tore , although an adverti sement of di she s alone would

not appeal to them The plan w a s successful In two
. .
days the entire stock of dishes w a s sol d Th e s ale en .
97
98 K EE P I NG CA P I TAL AT W ORK
taile d a s acrifice o f about on e third o f the cost price o f
-
the goods but the hardware merchan t di spos ed of a

,
s tock that he could s ell in no other way a n d he al s o ,
s ecured the money he needed to meet h is bill s .
H is ability to deal with the s ituation w a s due in the ,
first place t o the fact that he fully analy z ed h is s itua

,
ti on He fores aw the d ifi icult ies that were ahead o f

.
him He kept a detailed record o f h is bus ine ss s o that

.
,
h e knew cl o sely how much money he would h a ve on

hand and the amoun t of h is obligation s at a n y time .
This estimate gave him warni n g in plenty of time ;

thought and in g enuity furn i shed the needed s olution t o
h is puzzle .
How to P r epa r e for B usin es s Needs a nd Opportun ities

—I n crea s in g I n come a nd P erfectin g Credit
o okin g ahead and planning in advance

L necessary is
not o nly in fi nding money to buy good s to make in ,
ves tments and to plan adverti si n g or sale s campaign s

, ,
but als o and chiefly in the ordi n ary cours e of meetin g

your busine ss obligation s .
The ne ce ssity for planni n g ahead applies equally well

to opportunitie s and to emergencie s It is one thing to .
s e e opportunitie s —i t is another to prepare to take a d

vantage o f them A S outh Dakota merchant by plan
.
,
ning ahead w a s able to buy out the stock o f a dealer

,
in a s imilar li n e He knew that thi s merchant w a s s pec

.
ul a t in g heavily in land — that h is regular busin ess w a s

falling off through neglect He kn ew that he would
.
either have t o s ell o r make a n a s signmen t so h e reduced ,
h is o w n s tock s ecured a full li n e o f c r edit a n d a ccumu

,
lated a su rplus When the opportunity came he w a s

.
,
able to take adva n tage o f it .
In plannin g to meet ca sh needs there are two cours es ,

PL ANNI NG TO MEE T B I LL S . 99
open $ to increa se pro ducti o n within the b us ine ss

(1 )
and ( 2 ) to secure additional credit Ability to use .
these meth o ds depend s upon the completen e ss of your

foreca st .
There are many ways to increa s e production o r in

come within a business One method a s in the cas e of
.
,
the hardwar e dea ler is to adopt a new sale s scheme

,
.
A manufacturer in Texa s who w a s facing a stringency

hired an effi ciency expe rt to go over h is bus ine ss He , .
found that on s ome products the firm w as actually

lo sing money while on other line s it s ecured a large
,
profit The manufacturer immediately c oncentrated all

.
h is effort s up o n o n e leading department of h is plant ,
for he sa w that he could cut the price o f thi s a r ticle and

through increa sed s ale s could more than cover the de
fi cien cy he w a s fac i n g Another manufacturer in a
.
,
s imilar s ituation had a large stock o f raw material o n

'
hand He worked a double shift to convert thi s into

.
salable goods a n d for the period up to the time when

,
his note s w er e d ue he reduced other expen se s and buy

'
ing A large adverti sing agency which had n ote s due

.
o n the first of the mon th that it could n ot meet to ,
gether with the payroll chan ged the pay day o f the ,
salaried employee s from the first to the tenth o f the
month When the need came the change which had

.
, ,
lon g been contemplated o fi er ed an ea sy solution for ,
the problem Another firm in need o f larg e sum s

.
adopted a freak collection letter c onsi st ing only of the ,
heading and a que stion mark which s ecured results ,
from debto rs who never gave the ordinary st a tements

more than a glance A jewelry hou se which had been
.
idle a greater part o f the dul l summer sea son s put in a

line of souvenirs and other article s to attr a ct the tour
is t trade .
1 00 K EE P I NG AP I TAL AT
C W O RK
Thes e are o nly a few o f the solution s that have been

effectively us ed to cover fore see n s tringen cie s The .
clever manager first con siders s ale s a n d adverti sin g .
He s ees if the production by the se means can be in

crea sed He al so tightens up on collection s and re strict s
.
credit He reduce s stock to the bare neces s ities of the

.
bu sine ss He endeavors to di scover unprofitable depart

.
ment s and does away with them He makes additional

, .
effort s to st0 p leaks Extra ordin ary needs are met with
.
extraordinary action s o r appeals The first point to .
remember however is that the ability t o provide for

, ,
opportunitie s and contin gen cies depe n ds upon the a b so

lute check vou have upon your bus ine ss — the accuracy
of advance kn owledge of available re sourc es a n d pend
ing obligations .
La yin g P la n s f M
or ore C r edit to M e et Your Future
Needs for M on ey
An e as tern manufacturer sa w that in thi rty days he
wo ul d need twenty fi ve thou sand d o llars -
He h a d a l .
ready been refus ed cre dit by the banks but since the , ,
dull seas o n w a s coming in h is bus ine ss h is o nly ch a nce ,
wa s to ove rcome their di st ru st He knew that h is a ss ets

.
—
the value of h is equipme n t alone w a rranted a loan
o f much more than he needed He w a s cert a in that .
if he could convince the bank ers of b us ine ss methods in

h is enterpri se they wou ld agree to extend accomm o da
,
tion s He coul d borrow but he mus t first r e e stabl ish

.
,
-
h is credit .
H is first s tep w a s to secure the repo r t o f a public

accountant This showed that the condition of the bus i
.
ne ss w as sound but that the credit s t a nding of the fi rm

,
w a s impaired by p o or orga n ization a n d mana g ement .
Wh en the r eport w a s completed the owner of the busi ,

PL ANNI NG
ne c om pletely re o rganized every dep rtment o f h i
ss a s
concern Then he went t o the banker with h i rep o rt

.
s ,
showed him h o w he had reformed o me of h i manag e

s s
ment methods and that he had ample se curity The .
loan w as g ranted without he sitation B y fore seein g the

.
need for money the owner o f the busine ss w as able t o

,
put it in a con di tion that made h is credit s tanding rig ht .
Wha t to Cons ider in P la n n i n g to Meet Every da y -
The keen fin a n cial head will n ot only fore see a n d plan

to meet contin gencies that threaten h is busine ss exi st
ence and Opportunities fo r la rg er profit but will al so
, ,
plan h is financing so that he can meet h is usual bills

with the greates t convenience and lea st anxiety with ,
out impairi n g h is credit standing .
In planning t o meet regular fin a ncial o bligation s ,
there are fo ur p o ints to con sider

1. Purch as es P li rch a ses should be planned in rela
.
tion t o obligation s When the busine ss is heavily bur

.
den e d it is often be st to sacrifice market advantage s t o

, ,
purchas e c onservatively and to reduce stock .
2. The maturity o f new obligations B y kn o win g .
the ca sh receipts assured at every date in que st ion the ,
executive can spread out the maturity of h is note s so

that it will n ot be necessary either to put off creditors
o r to s ecure additional fund s from the bank .
3. Collection s When credit s exten ded to cu stomers

.
make too great inroads on the working capital y ou can ,
—
a fford d o o ffer di scount s for ca sh to put pressure o n
,
your slow pay customers o r t o arr ange a s a last re so r t

-
,
fo r loan s o n the s ecurity of your accoun ts receivable .
4. Shortage in mo n ey markets .Wh en money prom

is es to becom e tight and di scount s are begin n ing to
1 02 KE EPING CA PITAL . AT WOR K
ri se a rrange to have cas h o n han d o r t o have l on g
'
, ,
time c redit agreed upon be forehand A study o f threat .
en in g money con di ti ons enable s the merc hant to us e h is
credit in t ime to supply the needs of h is bu siness at a

s a vin g imp oss ible if he waits until everyone is de mand
ing accomm o dation .
The ba si s o f g o o d financing however is g oo d a ccount

, ,
in g
. The wi s e financial head firs t makes s ure that the
money facts of h is bu sine ss c ome to him regularly auto ,
ma t ic a lly accurately Having secured thi s informatio n

,
.
,
he can match h is appr o aching obligations a g ain st h is

r e s ource s and can fore s ee tho s e unu sual demand s that
,
call for increa s ed output reduction o f expens es and a

, ,
reinfo rcement o f credit stand in g .
G o v e r n t h e E xpen se
F H E h a s t h e p ro e r sy st e m , t h e p
I x
.
e e c ut iv e ca n sc a n t he e p e n se x
s t re a ms fro m t h e e m in e n c e o f h is o w n
des k No rivul e t w ill b e t o o s m a ll t o
E h
.
s ee ac e n t ry w ill b e it e m iz e d un d e r
p
.
it s p ro e r c l a s s ifi c a t io n I n run n in g .
h h
t ro ug t h e a c c o un t s e a c m o r n in g , h e h
c a n p l a c e h is fi n g e r o n it e m s t a t a p h
p e a r t o o l a rg e o r un c a ll e d fo r o r w ic , h h
n ee d e xp
l a n a t io n H e c a n o in t o ut p
p h xp
.
t h e s o t s w e re e e n s e s t re a m s c a n
b e da m me d — .E dw a rd L Wede les .
C HAP T R $ IV E
Keeping E xt ra Mo ne y B us y
HE THER idle money or idle money p ossibilities
in a n y o th er fo rm really e xi st s in a busin ess is a
que stion of viewpoin t Ma n y merchant s let their sur
.
plus dribble away un noticed leaving a sen se o f always

,
being pressed for fun ds A great manuf acture r came

.
home from Europe to find h is executive s nursing a b ig

bank balan ce merely for the s en s e o f s afety it gave
them in h is ab s en ce “
I hire y ou n o t only to make
.
money but t o use it to put it back a t 8 % in the bus i

,
ne ss rather th a n to lock it up in the bank at wa s

h is cau stic word to them .
“
My store ma n age r s go up or down put five figure s -
of profit or only four upon the Jan uary balance sheet

—just in proportion a s they keep their capital tur nin g
'
”
cons tantly s aid the head o f a chain of retail store s
,
in town s of from to
These stateme n t s show t h e attitude of the succe ss ful
man towards idl e mo n ey In h is ca se surplus funds are
.
foreseen e a g erly sei zed upon a n d put t o wo rk a s t h ey

,
develop Lin es which prove slo w a re clo sed o ut so tha t

.
the c as h c a n be put i n to fas t sellers Every item of

.
equipment groun d rent and payroll not highl y pro

,
duct ive is cut off .

1 04 K EE P I NG CAPITAL AT WORK
In every bu sine ss the pendulum swings between ex
cess receipts and excess dis bu r s ements The publi sher .
of a farm j ournal finds h is advertis i n g and sub s cription

returns fo r December a n d Ja n uary s even t ime s a s large
a s t h o s e fo r July a fi d Augus t while his c urre n t expen s e s
,
vary not ne a rly so much The furn iture house the

.
,
tailor the manufacturer o f stove s the dealer in farm

, ,
implement s have s imilar problem s

, .
When in goi n g over h is mo n thl y balance however a

, , ,
merchant stumb l e s upon a $40 0 surplus he is in no p o

s itiou to make the mo s t o f it It is only by record s plu s
.
foresight by watching money pourin g in through many

,
channe ls by shutti n g off ext ravagances which follow at

,
th e heel s of ea sy m o ney a n d by making extra e fforts to

,
“ ”
bunch idle funds for new us es that they can be ,
made to pay their t e ll to the business .
A succe ssfu l manufacturer h a s chos en the year 1 9 1 0

as the s tandard o r aver a ge year in h is bu s ine ss H is .
daily monthly and annual statements always compare

,
the range o f receipt s and expenditures with corre spond

in g figures for 1 9 1 0 .
Twen ty Uses Tha t H a ve M a de I dle M on ey P a y

B a c k P rofi ts to S to re, Ofi ce a n d F a c tory
A b usine ss who se capital run s into eight figure s r e

c e iv es s imilar ca sh foreca sts thirty a n d s ixty day s in
a dvance At tho se s eas on s when surplus a ssets appear

. ,
the management at once begin s to plan the us e o f thi s

extra money .
“
S hall we need this balance shortly ? is the firs t
que stion a sked .
“
I s this an actual p rofit item which we can afford to
w ithdraw from o ur operating fun d a n d put into fixed
”
improvements ? is the next inquiry .
US I NG S U RPL U S FU ND S 1 05
Is there n o profitable us e for this surplus w ithin

o ur bu s i n e ss a n d should we i n ve s t it a s a res erve in
”
out side securities or e n terprise s ? Thi s que stion is
taken up on ly after the i n s ide needs of the bus ine ss have
been can vas sed .
The mo st common surplus is that which accumulate s

merely for a short sea son a n d a s the records show will
, ,
s o o n be needed t o meet bill s S hort time u s es which

.
have returned good profits on extra money are $

1
. To buy raw material on a low market .
2
. To buy j ob lots for quick s ale .
3
. To e stabli s h a temp o rary branch for s ea s o n al
trade a s a s ummer shop at a plea sure resort
, .
4
. To tie up by option a lease or location o f which
a competitor th r eaten s to make dangerous use .
5 T o m anufacture buy o r stage a sale for a s pe

.
, ,
c ia l s ea son o r occas ion .
6
. To di scount bills or call in obligations that are
,
drawing intere st .
7
. To extend extra credit to a valued cus tomer .
8
. To make up supplie s or lay in equipment for the
plant duri n g dull days .
A jeweler in an Atlantic Coast city found h is s tore

and capital practically idle during eight month s o f th e
year while h is trade luxuriated at sea side and mountain
resort s For three years he had seen h is win ter surplus
.
eaten up by summer expen se s During the fourth win

.
ter he formed a res olution to sei z e h is an n ual exces s

m oney and make it produce H is plan s l aid far ahead
.
, ,
were to es tabl ish a branch store at a fas hionable Maine

resort He took a summer lea se up o n s pace in a lead
.
ing summer hotel hired furni shing s s en t down two of

, ,
h is sale speople and fres hened hi s di s play weekly wit h

n ew l ine s from h is met r Opol it a n st o re The resul t wa s
.
106 K EE P I NG CAPITAL AT WORK
dul l sea so n profit on what had been idl e m oney idle ,
labor idle overhead expe n se a n d idle stocks

, .
“
Idle money o r the ability to take the di scoun t
g ive s the clever purch a s i n g a gent a n d s tore buyer an
important adva n tage in the market The merchandis e .
manager of a great department store when formerly ,
buyer for the haberda shery s ection often turned the ,
department surplu s in a s ingle day During a lull in .
an extraordinari ly good bus ine ss day when stocks had ,
been pulled over he w a s accus tomed to drive to the

,
whole sale quarter buy for ca sh an attractive lot o f

,
neckties hos iery or hats pile them into the cab a n d

, ,
rush them to the s tore The n ew merchan di s e fre sh

.
ened the di splay a n d started a new buying impul se

which made the departmental balance that eveni n g the
envy of other buyers .
B u sine ss expans ion ought to wait until accumulated

profits or new capital warran t s the move Where such .
a surplu s h a s been fore seen h owever many profitable

, ,
a ven ue s a re o pen t o it s use $
1 . T o enlarge the factory o r store .
2 . To develop the ma n ufacture or sale of a pa rt icu

lar line or to take on new line s
, .
3 . To buy patents resulting in the sale of new line s .
4 . T o develop a special adverti si n g and sale s c a m f
p a ig n .
5 To devi se an improved delivery system

. .
6 . To reach a new clas s or a new trade distri ct .
7 . To reorgani z e department s .
8 . To O pen new s ource s o f material .
9 . To give the bu sine ss a financial overhauli n g which

will res ult in economy a n d better credit .
10 To develop a new sy stem of hiring han dlin g and

.
,
paying employees .
US ING S U RPL US F UND S 1 07
11 . To secure real e state deeds or lea ses on future

bu sine ss site s .
12 . To put o n foot an inve stigation of condition s

that threate n the pro sperity o f the busin es s .
An i n ves tmen t in permane n t improvemen ts ough t to

s tand thi s tes t $ Doe s the bu sin e ss warra n t this ex
p e n sio n a n d will it mean an i mprovement in cred it
s tandin g or fina n cial effi ciency ?
Rein vestin g a S urplus fo r the E n la rg emen t a n d Gr ea ter

S ta bility f
o the E n terpris e
A clever druggis t planned ahead for three years and

by concen trating all the surplu s which ri g id economy
e n abled him t o accumulate purcha se d three suburban ,
store s at strategic points in stalled motorcycle delive ry

,
and Open ed a plant for making h is own fro z e n dainties

. .
B y the s e mea sure s b e at o n ce put h is idle mo n ey back

i n to the bu siness in a way which g ave h im trade con
trol on an extraordinarily economical ba si s .
A stone cutting and sawi n g concern w a s a c cumu

lating a su rplu s which month by mo n th moun ted from
, ,
2 per ce n t until it promi sed to total 1 2 per cent of the

'
capital stock Already it had lain in ban k at nominal

.
interes t fo r seve ral month s when at the s ales ma n , ,
ager s sugge stion the mon ey w a s put into a bra n ch shop

’
,
in a neighboring city which o ffered a n un us ual oppor

t un ity Operated a s a branch thi s required but small
.
,
capital a n d s oon became a source o f profit

, .
To o often extra fun ds blind the o wner to dangers

which threaten the life of the concern The first office .
o f profit s in the wi se ly co n ducted bu si n e ss i s to s afe
guard the future not m erely by co n tin gen t re serve s but

, ,
al so by furn i shing fun ds for i n ve stigation s and te sts

o f better bu s i n es s m ethods .
1 08 K EE P I NG CAPIT AL AT W ORK
F or years an omin o u s increa se in s elli n g expens e
h a d been cuttin g into the profit s of a nation wide hard -
ware bu sine ss Finally it w a s voted that the s emi

.
annual surplus be us ed to conduct an expert i n ves tig a $
tion o f j obbin g di r ect selling a n d adverti sing with

, ,
comparative records over a period of three decades .
The se reco rds laid a warning finger upon several line s
for which the future w a s clo si n g and proved by test s

the growing profitable demand for other numbers .
This res ult illustrate s the most val uable function o f

extr a fund s in your b usine ss ; not merely t o pay a nom
in a l perc enta g e in s ome quick tu rnover but to plumb ,
your busine ss di fficultie s and opportunities so that the ,
firs t may b e corrected and the bus iness may go fo rward

t o success upon a th o r o ugh un ders tand in g o f the latter .
C he c k i n g Up
E NSE i b t t ll d b y
E t li i g it up vi i A ll it
$ P s es con ro e c en
ra z n s s er s on . s
d t il h ul d b
e a s s o ub j t t me sy ec o so e s s
t m th t
e du
a th m t
re th d ily
ce s e o e a
ut i y
sc r n f h igh x ut iv
o a er e ec e .
—
E dw a rd L Wedele s .
E
C H A PT R $ V
H a n dli n g R e s erve s a nd Inv es t ment s

OLL OW I NG the panic o f 1 9 07 a fi rm o f reta il
,
jewelers in a n ea stern city fa ced the nec e ss ity of

rai si n g a larg e s um in ready ca sh The firm had m a de
.
its u sual purchas e s for s pri n g payme n t considering the ,
money flurry only temporary Wh en spring arrived.

,
however the goo ds were still in the show case s More

,
.
over s everal jewelry supply house s hard pre ssed by

, ,
their creditors h a d given advance notice that they mus t

,
ins ist upon prompt payment .
Here is a co n di tion which e ver and e ver ha s put the

, ,
label o f failure upon short sighted s tore and fact ory

-
organi z ation s B y patience fore sight and w ise i n vest

.
,
ment however the j ewelers were prepared for preci sely

, ,
this emergency From the fir st they had re ali z ed that

.
in a busines s based up o n the sale o f l uxuries financial

s tringency mu st mean short fu n d s Dur ing ten ye a rs
.
o f r emun er a t iv e b us in e s s therefore they had r go r ous ly

, ,
i
s et a side a percentage o f their profit s a s a re s erve a s s et ,
inve sted in fi r st cla ss bonds yieldi n g a fair perce n tage

-
a n d po ss e ssing unexcelled stability U po n thes e securi

.
ties as collateral the head o f the fi rm ea sily borrowed

fun ds suffi cient to meet demands and mainta in its high
credit reputation .
1 10 K EE P I NG CAPITAL AT W O RK
In every l ine o f manufacture and service like con
t in g en c ie s often ari s e which can be met only by the
con s erved stre n gth of the concern it elf A mine may s .
be fl o oded A factory may b e wrecked by a g a s or steam

.
explosion There may be a dis as trous strike a crop

.
,
failure a s erie s o f lo ss es from bad debts a co stly dam

, ,
age s uit Depreciation o f property redemption o f

.
,
b o nd s the neces sity to scrap old fa shioned machinery

,
-
a n d to reorgani z e upon improved line s the danger o f ,
—
calamity not protected by in urance thes e are so me
s
of the f a ctors self evident o r unfore se en which may

,
-
, ,
unexpec tedly wipe out a man s capit a l make it non

’
,
pr oductive o r tie it up beyond reach when ready money

means bu siness life .
Men trained in finance and bus ine ss h a ve come upon

certain definite principle s by ob s erving which it is ,
fea sible to s tore up the strength o f pro sperous time s

“
for the rainy day B ut the accumulation of surpl us
.
funds and re serve a ssets whether in the bus iness o f ,
one thousand dollars or on e milli o n dollars capital is a ,
s o urce of s tre ngth only when carefully adapted to the
part icular need s mo st likely to appear and when in

vested in such a w a y a s to brin g in profits yet be ready ,
for in stant use in any emergency .
A fifty thousand dollar con cern in a Wi scon sin city

determined th at from the out set rese r ve as s ets sho ul d be
s et a s ide The executive committee did thi s cons ist
.
en tly eve n in the face of bills payable which c ontinually

,
had to be met by bank loan s .
“
I understand sa id the banker
,
that it is your ,
wish to operate on the most con servative ba si s What .
you are actually doing however is to borrow money , ,
from us to inve st in outs ide s ecuritie s You are letting .
the other man us e your credit to m a ke a profit which

RE S ERV E S AND INV E S T MENT S 111
you seem fearful o f attempting I shall have to ins is t

.
”
that y ou put your collateral back o f this loan .
The result o f thus attempti n g to s et as ide re serve ass ets

drawn fr om loan s a n d workin g capital i n stead o f from
the profit s o f the bus iness w a s that the re se r ve s ecuri
ties were already ou the table just when the c o rpora
tion caugh t by a deman d for ca sh mos t needed to
, ,
play them An expert accounta n t h a s laid down the

.
rule that capi tal and earni n gs ( after providing for de

preciation and ob sole scence ) are to be u sed first to
supply all the permanent fu n d s nece ss ary for the o p
cratio n o f the factory or store If after p ay i ng the

.
,
dividen ds properly due profit s are then sufficient it is

, ,
wi se to set a side a certain portion of them a s an

emergency or defin ite purpo se re serve The objects of
.
such a re s erve may be divided under tw o head s
1. A reserve may be built up to meet periodical or

s ea sonal demand s ,
a s where the forecas ti n g o f receipts
a n d di s bur s ement s indicate s that bill s may profitably
be di scoun ted with surplus funds in Ma y and Novem

ber while later receipt s will replace the res erve for
,
future demands .
2. A res erv e may be laid by blindly a s in surance

again st unfore seen cata strophes o r a fi n an cial cri sis ;
“ ”
or a s a war che st with which to c a rry on operation s
when conditio n s of supply demand and competition offer
,
unusual O ppo r tun itie s .
In decidin g upon a n d e s tablishi n g re serve a sset s the in

dividual mercha n t or ma n ufacturer who h a s become ex
pert in fi n ance guide s himself by the character a n d
needs of h is busines s He con siders the various s itua
.
tions in which a re serve would be of vi t al importance .
He makes certain that h is O peratin g capit a l is sufficient

and that h is reserve might not better be inves ted to
1 12 K EE P I NG CA PITAL AT W O RK
devel op h is plant and trade After studying the pro
.
c e d ure o f clever bu sine ss men in h is own and allied
lines he ca lculate s whether three four or five figures

,
will ad eq uately take care o f short time dema n ds and n u

-
fores een n eeds Finally he fixe s upon the term s under

.
which the res erve will be put a side and inves ted s o that ,
h is wi thdrawals will not overtax the bus ines s and will go

in t o s ecu ri ties well adapted t o h is needs .
H ow to S ele ct I n vestmen ts Tha t Will M a in ta in Your

S urplus I nt a c t a n d Rea dy for I n sta n t Us e
Having laid d own the definite financial policy which
b rings your re serve to your bank book t h e wi s e and ,
shrewd inves tment o f the fu n d s demands attention .
F o ur general tes ts of an inve stment are l ai d down b y

men o f finan cial acumen
1 . Are your principal and intere st safe o r certain t o
c o m e in when due ?
2 . Is the net return o r rate of income on the invest

men t advanta geous ?
3 . How doe s the security rank a s t o eas e of convert
in g it into ca s h and h o w staple is it s market value in
times o f cri sis ?
4 . What a re the pro spects of the se cur ity increasing
in value ?
A Geo r gia manufacturer whos e big selling seas on fol
lowed cotton marketi n g time inve sted h is ca sh res erve
,
in the purcha s e and development of an i n teru rban s ub

urb The needs o f the bu si n ess were for a re s erve which
.
w o uld meet expe n ses during the dull spri n g a n d sum

mer seas on s The gradual depreciation o f the plant
. ,
the nec e ssity for new machinery at the end o f five ye a rs

and th e immi n e n ce o f s ea so n s w he n s ales would be seri
l
o us y a fi e c t e d by drought a n d the ravage s of the bol l
R E S E RVE S AND INV E S T MENT S 113
weevil c on stituted a g rave re spons ibility in the use o f

,
thi s surplus accumulated dur in g six pro sperous seas o ns .
The inve stment h o wever took the surplus out o f

, ,
the busine ss and put it into another bus ines s which

o fi er ed golden po ss ibilitie s o f incre a sed val ue but a s a ,
p re lim inary demand e d larg e additiona l fund s fo r d e
vel Opmen t .U nder the mo s t favorable c o ndition s m o re ,
o v er
,
neith er ret urns n o r profitable sa l es c ould b e hoped
fo r under two y ea rs '
.
In stea d o f adding stren g th to his business the ex ,
ecut iv c had d o ubled h is ri sk and bled h is g rowin g c o n
cern t o s tart another An unfore s een period o f de

.
pre ssion coming simultaneously with irres pon sible man

,
a g emen t o f the r eal e s tate enterpri s e a fi e ct e d the c o n

,
cern s final re ourc e ts ba

’
s — i n k credit so se ri o usly that
—
the executive suffered month s o f stress a n d the s acri ,
fi ce of h is entire invested
“
re serve before he bro ught
”
h is b us iness to saf e gr o und a g ain .
B y matchin g every pro ffe red investment with th ese

four tes ts and with the requiremen ts o f your par
,
t icul a r bu sine ss you may make y o ur re s erve al mo st

,
ab solute in sura n ce again st finan cial wreck To pay for .
inapt advantage s is a wa ste for the pre sence in a hi g h

,
degree of on e de sirable quality always mean s a p r o por

t ion a t e lack in s ome o ther adva n tage The ma n o f
.
small capital mu s t count s afety as the prime requi s ite ,
and be contented with a smaller return W ealthy mer .
chants or corp o ration s may sometime s take chance s with

unrec o gnized stocks on the chan ce of i n cre a sed income ;
but the small retailer o r man ufacturer will remember
that his securities mu st be quick as s et s t o protect
“ ”
,
hi m from unfores een money dema n d s Where how

.
,
ever a fixed or semi fi xed inve stment is s ought bett er

,
-
,
1 14 K EE P I NG CAPITAL AT W O RK
interest and the promis e o f good i n crea se in value may
b e had .
Inve sting a surplus call s for financial knowledge

us ually bey o nd the field of the bus iness ma n him self .
The expe r t advice of profe ss ional inves to rs and trusted

b a nk o fficial s sh o uld g o i n t o the han dl in g o f your b us i
n ess r eserve S tudy and ca lcul ati on o f t he needs o f
.
y o ur business c o me first ; then tes ts investig ation and, ,
s elec ti o n am o n g the s ecurities avai lab le T o g et invest

.
ments ave ra g in g well in r espect to a ll fo ur te s ts kee n ,
business executive s make up a li st o f sec urities t o i n clude

“
g ilt
-
e d g ed ”
s ecuritie s o n which s afety a n d s o lid value
as c o llate r a l c ompens ate f o r the l ow r ate o f interes t ;
lower gra de b onds and stock s which pay well b ut may ,
dec line in the cri sis when prime bo nds are a t the ir bes t ,
a n d r eal estate or real e state mortga g es and leas es ,
a ffo rding rapid increa se s in value a n d perha ps so me

s pe cial a d vantag e t o t h e b us iness .
P a y i n g D i v i den ds
I NA NC I AL ga c it y a n d c o n t ro l
F a re n e ve r b e t t e r e vide n c e d t h a n b y
sa
m o d e s t l iv in g a n d c o n se rv a t ive p e rs o n
a l w it h d ra w a l s b y t h e o wn e r o f a b us
in e ss Div id e n d s o ugh t t o b e k e p t
p ri
.
do w n to a m o un t s t h e e n te r se ca n
s p a re w it h o ut hu t
r .
CH A P T R $ VI E
W here t o Lo o k fo r Le aks
a nd Sa vings
NCRE A S E D p r o fit s means increa s ed s a l e s or greater
economy The o pportunity to cut co sts and s top
.
leaks belon gs t o every department in eve ry b usmess

and touches econ omy o f la b o r o f time of suppl ies of
, , ,
material o f p o wer of service B ut the treasury o f t h e

, , .
busine ss th at department which handles the m o ney

, ,
uses the credit and make s permanen t investments o f t h e

capital h a s a c h ance to s ave which is g reater and le ss
, ,
often turn ed t o a dvanta g e than that o f perhap s a n y

o ther unit .
“
To all ow m oney t o lie in bank said the c as hier o f
”
,
is t o c ut th e fi r m s just
“
a metropolita n concern ,
’
profits fo r the am oun t earned in interest will never

,
a pproximate what a judicial di s counting o f bill s will

yield Intere st o n a checking ac co unt is in si g nificant
.
compared t o discount s which ran g e all the way fr om

,
two per cen t up to the max i mum o f six o r seven per

cent s ometimes o ffered o n dry g oo ds jewelry n o tions , ,
”
and merch a ndi se lines .
U se o f surplus fund s o r ea sy credit t o d iscount bill s

is an eleme n tary s ource o f saving ; yet it is often neg
l ec t ed or p assed o ver a s an unfamiliar operation H ow .
1 16 K EE P I NG CAPITAL AT W ORK
to keep check up o n bills payable a n d disc o unt the
la rg e st po ss ible t o tal o f them is thus deta iled by a
cas hier who s aves hundreds of d ollars t o h is con cern
monthl y in thi s way $
“ ”
At the begin n i n g of each month he s aid I make , ,
a lis t of the bills that fall due that month arranging ,
them according to date s of maturity Every fifth day .
I g o o ver thi s list to pos t myself a s t o the ca sh require d

in o rder to get full a dv a ntage o f di sc o unt s If more .
cash receipts come in than are demanded t o c a re for

cur rent bills I fre que n tly anticipate bill s and pick up
,
extra disco unts Where I c a n call in funds fo r dis coun t

.
use at a profi t I o ffer such terms a s will bring the

,
nee ded m oney at a marg in ”

.
H a n dlin g Fun ds a nd Usin g Credit o n the B a s is f

o
Le a s t L o s s a n d Grea tes t P r ofi ts
F inancia l s avings a s contras ted with eco n o mies in

o ther operatio n s o f a bu s ine ss have been worked o ut by
s killful cashiers and executive s under two heads
A L eak s and savin g s in the han dl ing of current

.
fun ds and c redit .
B . L eak s and s avings in the l ong time i n ve stment -
o f money within o r for the busine ss .
In either ca s e th e leak may con s is t in a loss o f

actual fun ds in hand ; in keeping funds idle which ,
repre sent s a lo ss not o f capital but o f po ss ible return

,
thereon ; o r fina lly ,

in the us e o f fund s so a s to
earn o nly a low return ins tead o f a p o ssible hi g her rate .
The cas hier who in h is daily handlin g of the check

b ook n eglects to di scount bil ls while a surplus s tands
t o his credit in the bank is a llowin g profit s to le ak awa y
,
through idle money ; o r if he mi g ht neg otiate a ba nk

l o a n ah ead o f a stringency for the pur p o se of dis c oun t
MONEY L EA KS AND SA VING S 1 1 71
in g the se bills when c as h secures him unusu a l price s he ,
is neglecti n g the use of idl e credit o n which a pro fit

might be earned .
Much le ss excu sabl e is a l o ss o f actua l capital dis ,
b ur se d without receiving an equivalent In checking

.
over h is b ooks the c a shier of a Chicago wholes ale hou se

noticed that the charge s for p os tage were run n in g
unusually he a vy An inve stigati o n brough t o ut th e fact
.
that in o ne dep artment the privat e use of s tamps o f th e

c oncern w a s re spon sible for a definite and by no m ea ns
trifling lo ss of capital Further study of the b ooks a n d

.
b ill s payable o r paid showed that a public accountant

h a d overs tated the time spent on the in stallatio n of a
n ew voucher sy stem and that there w a s al s o an over
char g e for warehou se s torage covering severa l crates

,
which did not belong to the c oncern billed .
Attention to the financial mechani sm o f h is o wn

‘
department thus enabled the cas hier to s ave h is fi rm

leakage of the actual w o rking capit a l It is upon s uch
.
c on siderat ion s in the daily handling of intere st items ,
di scount items overcharge s time of p a yment employ

, , ,
ment of surplu s and the openin g o f new channel s o f

cons tantly higher return on the working b a lance that ,
expert financial head s o f store s offi ces and factories are

,
s aving th eir s alaries five and tenf o ld eve ry year .
S to ppin g Losses Gea rin g up P rofi ts

a nd upo n Your
Fixed I n ves tmen t
The juni o r partner o f a New Engl a nd fact o ry h a v ,
i n g recently come i n to active control w a s di s cussing

,
wi th h is board o f directors a bond i ssue for the purpo s e

of doubling h is factory floor space when h is auditor
,
brought o ut the fact that the old management had

allowed the accumul ation of certain s tock to the amoun t
1 18 K E EPING CAPIT AL AT W O RK
of nearly Thi s figure me a nt that nearly a
quarter o f a million d o llars w a s con stantly tied up in
g oo ds which during the busy s eas on could not be con
, ,
s umed under ninety day s A special sa les plan was

.
devel o ped which cleared out nine tenths of this slow

,
-
s elling s tock a n d at once furni shed the work in g capital
for th e enlargement o f the plant .
Th e inve s tment of thi s amount con stantly in s to cks

whi ch were unnece ss ary to meet any p r obable demand ,
repres ented at five per cent a lo ss of $8 00 a month

through idle capital and without co n sidering the dep re
c ia t io n of the s tock Wherever money h a s bee n put into
.
lon g time inves tments the profit s it ca m s are a chal

-
lenge to this te st o n the part of wideawake executive s

wh o realize the tremendou s lo ss e s po ss ible fro m dead in
ve n to ry item s overbuyin g and of idle finances
, .
Capital may be inve sted f o r bus ine ss location s for ,
fixt ure s for equipment for raw material fo r stocks

, , ,
o f g oo ds for credit a ff orded t o customers f o r advertis

, ,
in g and s elling for overhead expens es o r f o r s ecuriti es

,
in tended to give the c o ncern res erve strength in ca se of

unus ual need Every one of these items may be and in
.
,
we ll c onducted financial divis ions is being put to the

-
t h r eefold te st already mentioned F irs t are the se funds .

,
the mse lves safe from actual loss ; s eco n d is this inve st ,
ment pro ductive o r idle ; th ir d acknowledging that thi s ,
capital is returning a profit w o uld it be possible to ,
s ecure a higher return with o ut sacrificing any imp o r
tant quality of the inve stment ?

Ho w to M a ke Compa ris on s S ho w up Lea ks in the
F in a n ci n g of a B usin ess
C o ntr
olling funds and inve and s —
tments fi n d in g
i
s te pp n g le k
a s —makin g money excel past records of
MONEY L EA KS AND V
S A I NG S 119
pro ductiveness —
mean s
to cl as sify to tabulate an d to
,
compare the fi scal item s for the day month o r year A,

.
new busine ss is often handicapped by ignorance and

lack o f data or records a s to the proper amoun ts to be
put into fixed inves tments or re served as working cap
ital ; a s to p ro per percenta ges o n and s avings in the
han dlin g o f funds ; a s to the use of difi er en t kinds of
collateral at the bank and the importance of bulk buy
in g a s c o mpared with di s c o unt purchas e s fo r ca sh
, The .
clever busine ss man supplies thi s lack through the

a ccumla t e d knowled g e o f h is banker and o f credit men
in firms fro m which he buys ; through the ass i stance o f

expert audit o rs and the average s of g oo d busine ss men
in c ompeting shop s o r allied lines This technical
.
in si g ht into financial ro utine he applie s to the study o f

alternative e stimate s in h is own fin a ncial o perat ion s ,
with the inevitable result that in the handlin g of m oney ,
as in the us e o f electricity or c o a l s a vin g s and increa s e d

,
effi cien cy a re deve lo ped .
St o p t h e Le a k s
A ST E p t h l if f b u i
sa s e e o a s n e ss .
D e t e c t in g w a st e is n o t a m a t t e r
o f j ud g m e n t b ut o f s y s t e m
— of co m
p a ris o n s
. Wa st e g ro w s w it t h e n umh
b e r o f un t a gge d it e m s in t h e a c c o un ts .
C HA PT R $ VE II
C h ec k ing U p an d Ma king
F in a nci a l F o rec a s t s
E TAIL w a s the stumbling block in the g r o wth o f
the bus ine ss of a larg e real e state dealer in a
s outhern city He w a s kept working late at night to get
.
thro u g h the mass o f detail that kept pilin g up with

increas ing confusion on h is de sk B eside s he never.
,
knew exactly h ow he st o od financially I t t o ok hours .
t o get the s implest fact s con cernin g vi tal m o ney ma t

ters in h is bus ine ss .
One ni g ht when he h a d just fini she d clearin g h is

,
—
d esk he l o oked at the clock it w a s almo s t midnight .
“
S omething m us t be wrong
”
he s aid t o hims elf
, ,
when I spen d mo st of my time merely checking up

bus iness instead of getting out and leading the sales
,
fo rce My bus in ess h a s been my mas ter I mus t learn

.
—
”
to mas ter it .
Th at night marked the beginnin g of a new policy in

h a ndlin g the bu s ine ss ; in calculati n g the records o f
expen s e receipts profit s obli g ati o ns outs ta nd in g and
, , ,
am o un ts due ; the conditi on o f e a ch department the ,
present balances and the ca sh that wo uld b e o n h a nd a t

any time An expert w a s e mploye d wh o n o t o nly
.
r elieved the executive o f h is unpro ductive w o rk b ut ,
1 20
B AL AN CE S AND FORE CA S T S 1 21
b o ile d down the detail s of all acc o unts and rep o rts into
one sheet o f e x a ct re sults which ga ve in convenien t form
an abs olute check upon h is busine ss that showed jus t —
where the bu sine ss sto o d and whether it c ould cover
the ledger liabilities It enabled the owner to l oo k ahead .
,
t o plan h is financial m ove s so that c a pital wa s never
pa y haga
FORM H z T hd i mf i
s ml v hp wdu i g d pap m id l i d a a l a m
o fi t hl y sta t e en t s o s ho w th e res en t of a re est t e co
p gu i l a l um a f a h i m u a t h e to of
.
t he
n
d w ab u c
or niz e
rt . Th e up
his
b gi i g
o fi
m
ce
er
h
n
fi
to th e e
re
w i
n t he
e en ro
— h
st co
i
c n
d i
q
a
n
d
e
b y
rt
ter e
e n ts
c
ste
te
cro ss
is t h e ot 1d
t he
n
xmp pa i
( 2111 118
e
a t t he
ens e o f
e
o t t he s u
e
m
rt
)
nn n
en t
l
e
wc
.
ee
fi g
s
u
e
p
of t h e
rn
r e
n
on t
r
s
e
t
res
h
a
e
enu
and
asl r
x
e
p d i u Wh
t t e n in red in k
wa s
a d pa d mpa mx d luma iwig h fi guu aamppma iv ld w m m

Th e o er t t h e
e
c
r
t
rs in
e
( e re n
t h e
en
o
t
e r
r
l
e
e r
e
e
r
d
3
e
c te
.
.
the m h
B y co
o n t , ea c h
r so n o f h is
ui m
e d pa m ma a g k w x a ly
e
rt
rt
en t
en t co n t th e q o t
p id abl h k v y d a m
n er
t o re q re e n ts , a n d t h e res en t is
no s e ct w
e t o c ec
k e
m
h o w his a u
o n e er
d
o rec e
or u p e
has
ep rt
a t t h e fi rs t o f
e s re
en t
idle so that h is credit reputation w as never imp a ired by

,
f a ilure t o meet obligation s when due and so th a t he ,

1 22 K E EPING CAPITAL AT WORK
could pr ofit by eve ry opport un ity t o exp and h is busi
n e ss and increa se h is profit s .
F orm II shows the pro portional expen se and the

s a l es of each department . Thi s sheet is in serted in a
twelve by twelve lo os e leaf bo o k so that the executive ,
ca n c o mpare h is late s t return s each m o nth with t h e
p rece d in g m onth s a n d years The upper figures in the

.
las t c olumn are the e stimate s made at the beginning o f

th e month o n the individual item s o f expen se Th e .
expen se s are divided between the di fferent departments

o n a b asis o f proporti o n plus judg ment and each ,
department h a s it s quota This quota enables the head

.
o f the department t o know exactly what figure in com

mi ssion s wil l clear h is department of lo ss for th e
month Thu s the bu sine ss is divided into power units
.
”
o r p ro duction unit s so th at the executive knows at a

g l a nce what department s of h is b us iness a r e l aggin g
b ehin d and tho s e that are addin g m o st t o h is ban k
b a l a nce .
The r eal es tate deal er is n o l on g er stru g glin g under

a mas s of detaile d information He h a s an accurate
.
b ird s eye v iew of the tendencie s of h is bu s ine ss By

’
-
.
c omparing recor ds he can tell what he sh o uld do in the

future ; what will be the e ffect o n h is whole bus ines s
fro m fact o rs which influenc e o nly certain depar tments .
He knows h o w much capital he needs to keep o n

re serve ; h ow much he may s afely invest He can g ive .
h is banker an accurate bas i s to work on so that he ,
h as a full line o f credit with out endangerin g h is bu si

ne ss ; a n d he knows m o re over where t o c oncentrate h is
, ,
e ffo r ts if he is obliged to make a quick increa s e in t h e

production of his business .
Plann ing ahead for succes sful fi n ancing of a business

ca nn o t b e d o ne b y guesswork The value o f a f o re ca s t
.
depends enti re ly upon kn owledge of pre sen t a n d pas t

bus ine ss The real e state dealer s plan gives thi s knowl
.
’
e dg e .
H ow a Fin a n ci a l Repo rt by P ercen ta g es M a kes

M o n ey P ro blems P la in
A large manufacturin g plant keep s an elaborate

s eries o f charts to control item s of expen s e Form s III .
,
I V and V g ive a complete record of the clas sified and

comparative expen se month by month The total s are .
incorporate d into the general p ercentage b ook s .
The firs t comparative percentage book g i ve s the per

cen tage o f expe n se s to s ale s ( Form V I ) If the e xe cu .
tive for example de sires to kn ow the ratio of offi ce

, ,
expen se to s ales he turns to the index fi n ds the t able

, ,
and running h is finger alon g the designat ed line s he ,
s ee s at a glance the percentage s for each month in the
year Now turning t o the yearly table he compares

.
, ,
the years a s he did the months Going down a line he .
follow s the ratio the salarie s bear to s ales and s o o n , ,
through all the subdivi sion s pertaining to the expens e

of s ellin g The averages reveal immediately any in con
‘
g ru it y o r ab r upt variation When the percen t age

. o f
office expens e to s ales is once approximately deter
mined he h a s the key t o the s ubsequent controllin g of
,
this item .
The second comparative percenta g e bo o k ( F orm

V II ) shows the ratio that each item of expense bears to
the total o f expen se An increa se in on e item is thu s
.
made con spicuous .
The third comparat ive percentag e b ook give s the

ratio o f expens e to gro ss profits ( Form V III ) This .
b ook g ive s the o fficial s a s urvey of the bearing of the

expen s e accoun t upon the busin e ss a s a whole .
By mean s of the se forms the executive h a s a complete
d aily monthly and yearly record o f h is bus iness
, .
Expense re po rt s reach h is de sk daily in two books

“ ” “
General Expen s e Cla ss ified
, an d S un dry Expens e
, ,
Cla ss ified The d aily items are condens ed in the

monthl y percen tage books and those a g ain in the yearly
p ercentage book s .
A s ingle ins tance sh o ws the value o f these record s .
One of the electric meters showed at one time a sudden

j M p from twenty three to forty dollars
-
T hi s w as.
de tected a s s oon a s the m onthly comparis o n w a s made .
The s udden increas e w a s clearly due t o s ome fault in

the meter or to s ome inexcus able was te The di ffi cul ty .
w a s s oon located and in the s uccee din g m o nth th e meter

had dr opped t o n o rmal .
How Records a ndGra phs Ca n be Used to A id in

Fin a n cin g a B usin ess
A su ccess ful manufacturing hou se h a s o rganiz e d a
sy stem o f accoun t s s o accurate that the manag e r is able
clo sely t o es tima t e the revenue and di sbursements

m o nths ahead At th e be g inn ing o f eac h m onth th e
.
audit o r submits a statement showing jus t what revenue

may be expected from va rious so urce s durin g the ensu
in g thirty days . The figures are bas ed upon avera g es
covering the same m onth durin g several years The .
total receipts under the various he a ds are li sted daily

with the aid o f a ca sh regi ster and if a t the end o f the
, ,
first week in the month the manag er sees that they a re

falling bel ow the e stimate h e st a rts a special c amp a i g n
, ,
for increas ed b us in ess For quick compari son of b ig

.
t endencie s in the bus iness he al s o h a s a constant

,
g raphic r ec o rd prepared Thi s graphic

. or picture
meth o d is gain in g g roun d rapidly whenever clever
B AL AN CE S AND F O RE CA S TS 1 25
fin anciers o r executive s are in c ontrol .
In plotting a gr a ph each square repre sents a certain

,
unit o f t ime money o r q uanti ty B y c ount in g th e spaces

,
.
exa ilyu ivp

FORM S III
e c t
—VIII $ f m m p a i x p r ng e
e t o o rec st a n d co n t ro t h e fi n n c s t t
wa
o n
y
f xpa i m byl i m a ia lm i uah liy a l uapph i f m mapp ua d a
Six o r s co h
Th
a
e n s e in difi eren t
e
a bl er
s t
o r i
t en
s s e
e th e
f or
am —dl f y g
.
d
s
re o rt o f e
x f m
en ses , t e
e o r er o n t h e n e t o r hi d m
te
Th e t r h w
Th e
or a a l
on t
i
s o s an a i
tot
ih lifgh mi u p dw —d va l uap il g pa l ifi al ah p i m d pd am d
.
nl i m
on e c
s s of
te
s n e
e rs i n t h e
te o f ex
Pi l w
.
e ec t r c t n g a n d o er e k s in difi ere n t rt en t s
; ns e e e o n s ec c e
a .
a . p
erc en t ag p iv ly
l e o er t ree o r s a re
e res ect e al a l
se fo r a n n n
o f the s p
es t o t
to t
a
, t h e ex
of e c
p fi
ex en s e t e , in i c te
en s e t o t l a n d t h e g ross ro t
as
horiz ontally then vertically a point is fo un d whi cli

an d
corre sponds with the condition s to be graphically rep
r e sented and th e line is made by connectin g the differ
,
.
ent po ints These g raph s n o t only save the time o f the
.
executive but they als o give warning s of n ew condition s

,
and provide danger signals The lin e of the gra ph .
s hows the actual tendency of the bu s ines s a n d doe s thi s ,
much better than a column of tabulated fi g ures po ssibly

could Furthermore the s e g raphic records give a n
.
,
opp o rtunity for comparis on o f resul ts with corresp o nd

in g periods o f former years The g raph literally pic .
ture s the s e comparisons A ris e or a fall o f the line .
shows immediately the tendency of the busin ess and the
manag ement is able to provide in t im e for th e c o ndi

tions that the g raph fo res hadows .
Keepin g an A cc ura te Check upon Your B usiness

a nd M a kin g M o n ey Foreca sts
In det ermining the exact condit ion o f a b usin ess th e
following sugge stion s are important
In the firs t place separate accounts sh oul d be kept
,
of each department B y means of the se a ccoun ts a n y

.
department which doe s not pay is ea sily detected and

may be d one away with ; al so the e ffect o f certain fac
tors up o n the con dition of the busine ss ma y be accu
rately de te rm ined A record s imilar t o th a t of the real
.
estate dealer will sh o w not o nl y the condition o f th e
wh ole bus ines s but the actua l state o f e a ch c omponent

,
p art .
F or the s tore ofi ce or factory in which the employ

,
ment of an expert accountant is too ex pens ive it is ,
g eneral l y p os s ible to s ecure an expert f o r t w o or thre e
evenings in each month S ome methods must be fo un d .
t o g et full and accurate s tatement s b alan ce sheets and ,
mo n ey forecasts at frequent intervals Ma nufa cturing .
plants a n d indus trie s of compl ex and techn ica l character

s h o uld g e t ex p ert rep o rt s at ce r t ain de fi n i t e peri od s ,
es pecially concern ing deterioration a n d other condition s

th at are diffi c ul t to determine .
Graphs are ea sily kept and they are of gre a t value

even in the smal l busine ss They make comparis on .
extremely s imple and the factors which e ffect b us ine ss

may b e i so lated and thus determined These records .
give warnin g of c o ntingencie s in time to pr ovide for

them .
h g a p h h w a ma u f
ahu di id g pi u hu d dd lla a w
T is r s o a usp l d
h owd i g a l p b
Ju
ny w f m
ct
v ma d
rer ha s o t te h is to t ro fi ts eek s a n d e
s tr
n
k
re
t ree pe r
n
tod
ct
one
c en t .
re
S c c
nf mrev
o f t he M
iecre se
h mad u h ha ba i v g all ip ui dgi bau m ma yy a o

rt s c o
rs pe r ha
in h is p ro fi ts
e ri n
eek , or
rec e
ro
ts
ur
o
and
n
s
ay
e r s x t ee n
rse
an d
per
e n ts
ne
c en t
fo r
ro
to
e
o
less t
er
rs a re ea s dy
s ix
n
s s o f es t nn a t es fo r o fi ic es
e a n d a re t h e en s n se so n s in n
S ucce in financin g a bu ine depend largely up o n

ss s ss s
ability to provide for future money opportunitie s an d
emerge n cie s Gue ss work is only s elf

. deception Re c -
.
ords are the prerequi site of fores ight but thi s is not ,
their on ly value They enable you to secure th e c on fi

.
den ce of th e banker and your creditors through your

ability knowledge and progressive spirit They enable
,
.
1 28 K EEPIN G CAPITAL AT WORK
y o u to plan ahead for emergencie s and s ecure fun ds
when h ope s pres ented in stead of fa cts a re futile ,
.
They warn ag ain st m o ney wa ste and ofi er the ba sis

o f me as ures that meet the cri sis With efficien t fi n a n
.
c ia l rec o rd s the executive need s only s tudy and inge

,
n uity to do mi n a te h is bus ine ss a n d push it t o s olid
succe ss .
W ha t G a i n s S uc c e ss
U S INE SS s uc c e s s re s ul t s fro m t h e
c o m b in a t io n o f e ffi c ie n c y in m a n
a g e m e n t w it h p
w is e us e o f c a it a l a n d
c re d it. h p
Fo re s ig t , l a n n in g a e a d t oh
m ee t m o n e y d e m a n d s , c o n s c io us a t t e n
t io n t o t h e d e t a ils o f c re d it s t a n d in g ,
h
re c o r d s a n d fi n a n c ia l a d vic e t a t s o w h
up t h e d a n ge r s ign a l s c o ura g e a n d re
,
s o urc e ful n e s s in e m e r g e n c ie s , t h e m a x
p
im um us e o f c a it a l a n d c red it w it in h
t h e b o un d s o f s a fe t y — h
t e s e a re c o n d i
h
t io n s t a t fi x t h e b a n k h
b a l a n ce , t a t
h
d e t e rm in e t h e g ro w t o f a b usin e s s ,
th a t m 8 it s c o urs e s ure
’
a . .
RETURNTO th e l
c irc u a tio n d e sk o f a ny
Un ive rsity ofCa lifo rn ia Lib ra ry
o r to th e
NO RTHERN REG IO NAL LIBRA RY FAC ILITY
Bld g 4 0 0 Ric h mo n d Fie ld Sta tio n
. ,
Un ive rsity ofCa lifo rn ia

Ric h mo n d C A 9 4 8 0 4 4 6 9 8
,
-
A LL BO O KS MAY BE REC A LLED A FTER 7 DAYS

2-
mo n th lo a n s ma y b e re n e w e d b y c a llin g
( 51 0 ) 64 2 -
67 5
3
l ye a r lo a n s ma y b e
-
re c h a rg e d b y b rin g in g
b o o ks to NRLF
Re n e w a ls a n d re c h a rg e s ma y be ma d e 4
d a ys p rio r to d ue d a te .
l 2 000
,
(l

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F I NA NC E A

VI FINANCING ON REAL AND PERSONAL P OPERT R Y

VII POIN T S THAT W THE BAN ER D C REDI T M N

VIII H W O BUI LD A REPU TATION T HAT ASSURE S C RE I T

I$ BU ILDING A BUSINESS ON THREE FI GU RES

HOW TO MAKE TH E M OS T OF YOUR CAPITAL

$ IV KEE N G E T A MONE BUS

$ VII C C IN G U AND MA IN G F IN ANCI AL FO ECAS TS

II W ENH USE THETo B ANK

III BU SIN SS FACTO UN ER L IN G SUPPL HOUSE

FAC O S T HAT STA LISH FINANCIAL CONFIDENC

P ERSONALIT FACTORS UND L IN G CREDIT

HOW UI LD A CREDIT R UTATI N

HOW FINANCE EME GENCIES

G AP IC RECOR FACTO PR FITS

M y vi i t alway th am ith i q uali y t

If y wa t a l a payabl t will ath th

u u ual ha f l y —mu t pay b

m y y u h ldi g d p iat d ay d ight y u

have been sufﬁ c ient At the start there w a s little c ompe

tition and th e b us ine ss pro spered .

The prosperity h owever Wa s brief The owner o f the

s t o re c o ncentrated h is attention on se l lin g and buying .

He ignored credit He paid all small bill s up on their

pres entati o n at the c a shier s window lar g er bills upon

receipt of inv o ice He took no measure s t o keep idle

funds active ; he did n ot try to establish a reputati o n

At length the busine ss required a new buildin g The .

younger members o f the ﬁrm a dvi sed e stabli shing their

competitor had entered the ﬁeld and w as mak in g exten

by followin g o ur method ? D o they k eep their ca pital

be tter t o es ta bli s h it n o w while we can ”

The s enior member o f the ﬁrm h owever was o b dur a t e

He wo uld d o n o thing until he had ac cumul ated a sur plus

though he a dmitte d that lack o f spac e w as a handicap .

The ﬁrst tw o years the ﬁrm mana g ed to build U p a

bank d rawing 3 % intere st Th e third year however

the c ompetition h a d so g r o wn that n o s urplus w a s

ness depre ss ion The balance in the b a nk s ank S till

the old p o licy w a s c o ntinued .

Wha t w a s the result ? The o wner o f the busine ss had

I ns te a d o f inspirin g conﬁdence h is plan had had the

o pp osite e ffect B usiness houses had concluded that he

was o b l ig ed t o pa y ca s h they came to demand ca sh on

establish cre d it b ut he had waited t oo long He found

himse lf a n ovice in ﬁnancing He did not kn o w h ow to

use t o a d vanta g e the s ecurities he po ss es sed He had .

fo rmed a p oo r reputati o n fo r busine ss acumen and w as

the ﬁrm w as compelled t o liquidate .

The failure of thi s merchant w a s due l argely to need

credit ; ( 2 ) t o make use of idle fun ds ; ( 3 ) t o provide

vanta g e o f b us iness opp o rtunitie s .

The ucce ss o f your b us ine ss is cl o sely c o nn ecte d with

your meth od s of ﬁnanci n g The value of c apita l d c

pends upo n the us e you make of it Your a bility to .

expand yo ur bu si n e ss t o ta ke advantag e of op portuni

how y o u use your re source s .

In the building the main tenance a n d the expans ion

of a bus iness ﬁnance is a two edged to ol I n s killful -

hands it b ecomes like clever s elling wi se buying or the

a bility t o han dle employee s a chief factor in the s uc

c ess of th e manufacturer the whole sa ler and the man

who me as u res dry go ods or weighs sugar for neighbor