Dawson Black: Retail Merchant Part 47

When ye took o'er tha beesiness, ye planned tae sell thirty thousand dollars worth o' goods the fir-rst year, and on that sales quota ye planned expenses to be twenty per cent."

I nodded agreement.

"By tha end o' November," he continued, "or, in other wor-rds, at the end o' the half year, ye were $1,128.00 behind your quota."

"Yes," I said, "but we have caught that up."

"Ye've done gr-rand," said Jock. "Noo frae June o' last year to the end o' February ye hae doone $22,640.00, or $140.00 above your quota. This means that tha third quarter o' your fiscal year showed an excess over its quota o' $1,268.00, which, if ye had keppit oop tha same pace through aw' tha year, would have meant an excess above your quota o'

$5,072.00."

"Wait a minute, Jock," I interrupted, "you're making my head go round with all those figures." And I took out my pencil and worked the figures.

"Sither," continued Jock, "ye planned your expenses to be twenty per cent. on a $30,000.00 business, but, as a matter o' fact, it's costing ye twenty-two and one-half per cent. on that basis."

"Let me see," I said, figuring vigorously, "Twenty per cent. of $30,000.00--that's $6,000.00."

"That is so!" said Jock.

"But you figure that, at the present rate, expenses will approximate twenty-two and one-half per cent. of $30,000.00--or $6,750.00."

"Ye spoke tha truth," said Jock. "In other words, ye're losing $750.00 worth of profit which ye would a' had if ye'd conducted your beesiness better."

"I guess I've--"

"Tut, tut, mon," said Jock. "I'm no' saying ye haven't done grand. Ye've done splendidly, but ye should be able tae keppit your expenses doon tae twenty per cent. As a matter o' fact, when ye do more business I think ye'll be able to do so."

"Where has that two and one-half per cent. extra expense gone to?" I asked.

"I'll tell ye," said Jock. "Ye planned bad debts tae be one-half o' one per cent., or $150.00, whereas they are aboot one per cent. or $300.00."

"Yes," I remarked ruefully, "I remember that we made a lot of bad debts when we first took over the business; but, since I have put in that new system of keeping closer track of charge accounts, we have had very little loss that way. We will be down to our one-half of one per cent.

next year," I added cheerfully.

"Maybe ye will," said Jock, "and then again, maybe ye won't. Ye will, if ye can keep your feet on the ground, and that seems deeficult for ye to do all the time, does'na it?

"Wi' regar-rd tae advertising," he continued, "we planned it should be aboot one per cent., or $300.00. Noo, as a matter o' fact, ye hae already spent that, and will probably spend $100.00 more afore your fiscal year is oop. Your advertising will be one and one-half per cent.

instead of one per cent. There's anither one-half of one per cent.

gone."

"Next year my advertising will again be one and one-half per cent.," I said, firmly.

"All richt," said Jock, "but dinna forget that the extra one-half of one per cent. means $150.00 cold cash."

"I'm quite willing to pay it," I said, and here I felt on sure ground, for I was convinced that the advertising we had done had been responsible in no small degree for our success in doing as much business as we had.

"General expenses," continued Jock, ignoring my comment. "General expenses we planned should be one and one-half per cent., or $450.00, but they'll be two per cent., or $600.00.

"Your rent should hae been three per cent., or $900.00. As a matter o'

fact, it's $1,000.00. Depreciation was planned for one-half of one per cent., but it'll exceed that, or so I surmise from what ye tell me, so that ye might say that depreciation and rent accounts for anither one-half of one per cent. excess o' your expense allowance."

"We will keep depreciation down to one-half of one per cent. nicely next year," I commented. "I will avoid some mistakes in buying that I made this year, and, besides, I will have cleaned out the remnants of the old stock which I bought from Jimmy Simpson."

"On the ither hand," continued Jock, ignoring altogether what I said, "ye expected delivery costs tae be one-half of one per cent., or $150.00, whereas I dinna believe they'll exceed $100.00, so there is a wee bit saving. Salaries should hae been eleven per cent., or $3,300.00, whereas they're rather more than eleven and one-half per cent., or $3,450.00. That is where your two and one-half per cent. has departed.

I'll summarize those excess expenses:

Bad debts.......................................... per cent.

Advertising........................................ per cent.

General expenses .................................. per cent.

Depreciation and rent.............................. per cent.

Salaries........................................... per cent.

"Here's the poseetion," continued Jock. "The average mark-oop is thirty-three and one-third per cent. on stock, or twenty-five per cent.

profit on sales price. Expenses were planned tae be twenty per cent. of sales, and, had that been so, ye would hae had five per cent. profit after all expenses had been paid, for yourself."

I began to listen attentively. Isn't it strange how one sits up and takes notice when one's own pocketbook is in discussion?

"As it is," said Jock, "expenses being twenty-two and one-half per cent., ye make only two and one-half per cent. profit, if ye do the amount o' business ye expect."

"_If_," I said scornfully. "It's a cinch we'll do it."

"I hope ye will that, but dinna brag aboot it 'til ye get it. Ye canna build your hoose 'til ye've got the bricks.

"Listen, noo," he continued. Jock had begun to remind me of an inexorable fate, he went along so quietly, impartially, just as if he were pa.s.sing sentence on me. As a matter of fact, he was making me think of the finances of my business in a way that I had never thought of them before.

"If ye'd made five per cent. net profit on your $30,000.00 worth of business, ye would hae added $1,500.00 a year to your income, whereas, noo that ye may make only two and one-half per cent. on that amount, your income will be reduced to $750.00. It's just those wee bit half per cents. that hae taken $750.00 out o' your pooch."

"If we increase our sales," I said, "of course that is equal to increasing our rate of turn-over, isn't it?" Jock nodded. "Now, see if this is right: If we do make a little less profit on each turn-over, the actual dollars and cents profit at the end of the year may be greater than it would be if we made a larger net profit on each sale but didn't sell so much goods."

"Ye reason that out well, lad," said Jock, and somehow I felt quite chesty to think I had done something which pleased the old heathen.

"If ye keep your expenses as at present, and increase your sales, all the profit on the excess business above your quota is porridge. Ye dinna hae to pay any additional amount for rent, taxes, heat, light, depreciation, advertising, or insurance. In other wor-rds, your operating expenses on all business, over and above your sales quota, are reduced by these items. This saving would reduce your operating expenses eight per cent., meaning that this excess business over your quota would only cost ye twelve per cent. to secure, instead o' twenty per cent. As a matter o' fact, if ye can get more business than your quota calls for, wi'oot increasing your salaries, that would eleeminate all expenses except delivery and general expenses. Noo, if ye feel ye must give awaw your har-rd-earned money here's a proposition for ye:

"Plan tae keep your salary expense at its present figure, which is based on $30,000.00 worth of sales annually.

"Ye can afford to pay eleven cents for salaries oot o' every dollar ye get. Give eleven cents on every dollar ye take, above $30,000.00, to your salespeople, as a bonus and divide it among them according to their salaries. For example, suppose next year ye do $40,000.00 worth of business--and ye ought tae be able tae do this, because ye're selling at a slightly better rate than $35,000.00 a year noo. If ye do, ye secure $10,000.00 above your sales quota. Eleven per cent. of $10,000.00 is $1,110.00, which ye could deestribute among your folk."

I referred to my note book of expenses, and said: "Our salaries at present total $71.00 a week."

"Including yoursel'?"

"Yes," I answered.

"Weel," continued Jock, "that bonus would add $22.00 weekly to that $71.00. That means for every ten dollars o' salary now earned there would be added $3.14 bonus."

"How would it work out in La.r.s.en's case?" I asked. "He gets $20.00 a week."

"His bonus would bring his salary to aboot $26.00 a week. Another way o'

putting it is that every dollar o' weekly salary seecures a bonus o'

$16.12 a year. I would suggest ye pay a bonus every quarter--if your quarter's quota o' sales is seecured."