If you get confidential with Mr. Bradstreet or Mr. Dun so that they
will give you access to the inside history of the commercial concerns
which have failed in business, you will quickly discover that in the
majority of cases the cause of the failure was "too much expense."
It has become quite a common saying in speaking of failures that "the
expenses ate up the profits."
Our friends Mr. Dun and Mr. Bradstreet tell us that there is about one
concern in fifty which succeeds in business. If you will look at the
successes you will find out that the proprietors were good buyers as
well as good sellers but that the particular point that made them
successful was their ability to make careful analysis in the matter of
expenses.
The business man should have his expenses divided into as many
classifications as possible. His payroll should be separated into
various departments, office, salesmen, workmen, accounting, and so on;
through all the items of expense the division should be made as finely
as possible.
The proprietor should have a statement each week on his desk showing
how every cent was expended. These items should be summarized monthly,
and constant reference made to the items of expense in comparison with
items of expense for the previous month, as well as items of expense
for the same month of the previous year.
One of the pit-falls in nearly every business is "general expense" or
"sundry expense." This department is a catchall for a lot of items, and
it hides a lot of leaks and wastes in business.
You can't divide your expense items too minutely. The finer the
divisions, the easier you can detect a waste of money.
The business man who has a statement of both receipts and expenses is
in the position of the first engineer of an ocean steamer; he does not
seem to be doing much and does not worry unless something goes wrong,
then he shows his training and ability to mend breaks and repair weak
places.
If the business man analyzes his sources of income into several
divisions the same as he does his items of expense, he will find it an
easy matter to correct errors that creep in the business. He does not
have to worry about those items of expense which show minus, nor about
those items of receipts which show plus.
With a finely divided sheet of both expenses and receipts you can
quickly determine where the profit is coming from and where the leaks
appear.
If an expense item shows plus, you can run down that item and see
reasons for it and endeavor to bring down that expense. If a receipt
item shows minus, you can run down that item and endeavor to increase
the receipts.
The writer has a little printed card on his check book and it reads
"Drive the axe into expenses." It is a constant reminder to stop the
wastes.
The only real success that comes to the business man is the profits at
the end of the year, that is, the amount of money he makes net.
It is easier to increase profits by cutting the expenses in many cases
than it is to increase profits by increasing sales. And here let us
remark that on this subject, as well as all the other subjects we are
writing about in this series of articles, we have in mind the matter of
common sense, temperate action. Extremes carry things too far. You must
not cut the expenses beyond the point where it seriously interferes
with the sales.
If you are interested in this matter of expense, and you certainly
should be, take up your items of expense for last month or last year,
go over the cost of help, the cost of raw material and the cost of
manufacturing; go over each branch of your expenses, analyze the items
carefully, look into every point thoroughly, and we will guarantee that
at the end of your analysis you will see where you can save a
respectable sum in the operation of your business. In going into this
matter of expense, do not take all the items at once, but take each
item up separately and go through it thoroughly.
Do not assume that you are paying too much for everything, but use good
sense and good judgment and see that you get your money's worth. Take
the item of wages. Look over the individuals in your employ, and you
will see a place, for instance, where two persons can do the work three
are now doing. Remember, it is generally true that where two persons
are engaged in handling a certain department and they are overworked,
the tendency is to give them additional help. When this is done you
will find thenceforth all three are busy. In other words, each of the
two persons who were formerly overworked ease up and do less work the
moment the third person is given as assistant. You have noticed that
where you put three employes to do the work formerly done by two, it is
almost impossible--if you take the employe's word--to get two employes
to do the work after three have been doing it.
The work should push the employe. The employer should get full capacity
of his employes.
Look over your pay roll and make up your mind that here and there you
are going to employes and ask them to help you save money, and at the
same time you will let them earn more money for themselves. You will
find that this plan works admirably.
For instance, if you have three employes getting $10.00 a week each; go
to the two who do the most work and say to them: "If you can do the
work of this department with one less employe I will give you each
$3.00 a week more." In this way you will pay two employes $13.00 a week
instead of three employes $10.00 a week each. This will save you $4.00
on that particular part of your payroll. If you save proportionately
all through your payroll it will make a decided profit in itself.
Saving can also be made in the payroll by taking one of the heads of
the department into your confidence and letting out the work to him by
contract, offering to give him one-half, or one-third or one-quarter of
the amount he can save in his department.
It is surprising to see how different his argument will be when his
pocket is affected. For instance, in the past he explained to you that
his department is behind in its work because he has not enough help.
He has been asking for more help right along, but never asked that some
of the help be laid off.
If, on the other hand, you say to him you will give him one-third of
what he can save in the matter of wages in his department, you will
instantly notice that his whole argument and attitude change. He
discovers that he has ability to pick out employes who do the most
work, and lets out the four-flushers and idlers.
Remember, that as a rule the best paid employes are the cheapest. You
can well afford to pay the heads of your departments more wages if they
can save you more money.
A manufacturer should divide the number of completed articles done per
day or per week by the amount of wages paid, and find out what the wage
item is in each department per article.
Suppose that under your present system it costs you eighty cents in
wages per article in Department A, sixty cents per article in
Department B, etc. Explain to the foreman of Department A that it is
now costing you eighty cents per article for wages in his department,
and to the foreman of Department B that wages are costing you sixty
cents per article in his department. Tell these employes you will give
them one-third or one-half of whatever they can save in their
departments. You will find Department A will cost you from seventy to
seventy-five cents per article thereafter, and Department B from fifty
to fifty-five cents per article, and in the meantime the foreman of the
department is making more money for you, and likewise making more money
for himself, than under the old system.
This matter of expense is most important, and should have the most
serious attention of the proprietor.