Make it a rule to declare dividends every month. We venture to say to
the business man that you are meeting all your fixed charges, paying
your rent and employes, paying for postage stamps, lights, taxes and
all other fixed charges. When the Government put a two cent tax on your
checks you paid that tax. You certainly can add one more fixed charge
to your business, and that fixed charge should be a percentage of your
cash receipts.
It is usually a difficult thing to draw your profits out of your
business in a lump at the end of the year, but if you draw your profits
out in monthly installments, you can do so without any burden.
The business man should figure what percentage of his cash receipts is
profit, and this percentage should be deducted every month, less a
little leeway to make the matter easier. Make the percentage a fixed
charge and put this money away in a special account as a reserve fund
if you do not wish to draw the dividends out of your business. If you
have this reserve fund drawn out in monthly installments, you are ready
for attack if your creditors call on you suddenly.
If you have a snug little sum in a separate bank as a reserve
sufficient to withstand any attacks on your business, your step will be
more elastic, you will have more confidence in yourself, you will have
less worry than if you are keeping your nose to the grindstone and have
no reserve.
There is some amount between a dollar a week and a thousand dollars a
week which you can draw out of your business without affecting it. If
you make this a fixed charge you will take care of it, and you will
arrange your business and your purchases so that this fixed charge will
be properly taken care of each month. You will trim your expenses a
little closer, and your business will thus benefit by having this fixed
charge.
Nearly every failure is due to sudden calls of creditors or refusal
of the bank to extend further credit. This fact shows plainly the
necessity of having a reserve fund.
Take your figures for several years back and find what percentage of
the total receipts was profit. If, for instance, your business earned
$9,000 and your total sales were $100,000, then 9% of your receipts
represents profits. You can therefore declare a monthly dividend of 8%,
and when Christmas comes you will have an extra dividend, being the
accumulated 1% each month you did not draw out in dividends.