CHAPTER 13

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BUSINESS METHODS. -----------------

Success in this day and age cannot be attained without a well thought-out plan of action. There is no business which does not demand some sort of system of management. The smallest business must have it, and will go to ruin without it. Hence every battery service station proprietor should see to it that his affairs are systematized -- arranged according to a carefully studied method. Most men look upon "red-tape" with contempt and in the sense of a mere monotonous and meaningless routine, it merits all the contempt poured upon it. Hard, fast and iron-clad rules, which cease to be a means, and become an end, prove a hindrance rather than a help. But an intelligent method, which adapts itself to the needs of the business, is one of the most powerful instruments of business. The battery man who despises it will never do anything well. It does not matter how clever he is, how good a workman he is, how complete his knowledge of batteries, if he attempts to run his business without a plan, he will eventually come to grief.

Purchasing Methods.

Every battery service station proprietor is eager to build up his business, and improve the character of his trade, because this in turn means that he will be assured of larger sales to a good class of customers. And it is at once evident that there are a number of requirements that affect this question of building up a business, one of the first in importance being that of purchasing.

One of the first things with which the battery man is faced is the question of what, where, and in what quantities to purchase. The philosophy of correct purchasing consists in getting the right materials, in proper quantities, at a low price, and with as little cost for the doing of it as possible. The purchasing problem should be a most interesting and important subject to the proprietor of every service station, because the policy pursued with regard to purchasing will not only largely govern the economy of all his expenditures, except rent and payroll, but it will also control his selling policies. Goods are sold, and services rendered only because some one wants to buy. The customer's purchasing problems govern the proprietor's selling problems. To sell properly, it is necessary to meet the requirements of those who buy.

Correct purchasing is not merely a matter of "buying." The buying itself has but little to do, after all, with the question of real economy in this part of the business. The proprietor's purchasing policy should not cease when the purchase order is

[Fig. 186 Stock Record]

made out, but should continue after the goods have been delivered, received and inspected. He should see that they are properly stored, that they are put to the use intended, and that they are used efficiently. This can be accomplished to good advantage by the use of the Stock Record illustrated in Fig. 186.

When goods are received, each item should be entered on these Stock Record cards, keeping in mind always that the requirements of a "perpetual" or "going" inventory of this kind are that a separate account be kept with each kind or class of stock, and not alone with each class, but with each grade of each class.

For example, if a quantity of batteries were received, it would not suffice to have one card only for the entire quantity, unless they should happen to be all of the same type and make. It should be understood that these cards are a record of all articles coming into stock, and all articles going out of stock in the way of sales or otherwise, with an individual card for each kind, grade, style or size of stock carried on hand.

From the purchase invoices covering stock received, an entry is made in the column headed "Received", to the proper account, showing date, order number, quantity and price.

Each sales tag is used to make the entries in the columns headed "Disbursed", in which the date, tag number, quantity, price, and the balance quantity on hand are shown.

If this is done daily, for all the sales tags of the particular day, and the cards on which the "disbursed" entries were made are kept separate from the balance of the cards, it is an easy matter to arrive at the cost of all sales for each day, The advantage of having this daily information will be explained and illustrated in following paragraphs.

The Use and Abuse of Credit.

The question of the proper use of credit is closely allied with the purchasing of goods. A great many business failures can be traced directly to overexpanded credit. Any battery service station proprietor who does not place a voluntary limit on the amount of credit for which he asks is, to say the least, running a very great business risk. The moment he expands his credit to the limit, he leaves himself with no margin of safety, and a sudden change in business conditions may place him in a serious situation.

Commercial agencies usually call this condition a lack of capital. The real cause, however, is not so much lack of capital as it is too much business on credit. This does not mean that credit should not be sought; or that all business should be done on the capital actually invested in the concern. Credit is necessary to commercial life. Very few business concerns are so strong financially as to be able to do without credit.

Credit should be sought and used intelligently, and it is not a hard matter for any battery service station proprietor to keep his credit good. All that is necessary is to take a few precautions, and observe in general the principles of good business. The first requisite, of course, is to accept no more credit than the business will stand. Sometimes it is possible to secure enough credit to ruin a business. Its present condition and future prospects may appear so good as to warrant securing all the credit possible under the circumstances.

It requires courage to limit the growth and the temporary prosperity of a business by keeping down the credit accepted. It is very hard to refuse business. It is difficult not to make extensions when there is enough business in sight to pay for the extensions. But the acid test of whether or not you should extend and borrow is not the amount of business that can be done, but the amount of money that can be spared. The mere fact that you have the money or can get it does not in the least mean that it should be spent.

And the reason for this is that, in order to keep your credit good, you must meet all obligations promptly. Nothing has a more chilling effect on any business than failure to meet all indebtedness when due. As soon as additional time is requested in which to meet obligations, your credit rating begins to contract; and if, at the same time, your credit has been overexpanded the business is placed in a most difficult position. More than one concern has gone to the wall when faced with this combination.

Proper Bookkeeping Records.

The principal difficulty in this matter of the proper use of credit will lie in poor bookkeeping records, making it impossible for the proprietor to know very much about his financial position or operating condition day by day and week by week and month by month.

Many service station proprietors figure what they owe once a year only, when they inventory, and many do not keep a permanent record even then; and usually those who are neglectful in this regard are the ones who owe the most, proportionately, who do not take their discounts, and who do not progress.

The following table covers the average discounts allowed in various lines. If you study it, and find out how much it costs you to lose discounts, you will at once realize the necessity for the proper sort of bookkeeping records.

1. 1% cash, 30 days net . . . . . . . . . . . . . . . . . . 12% per year 2. 2% cash, 30 days net . . . . . . . . . . . . . . . . . . 24% per year 3. 3% cash, 30 days net . . . . . . . . . . . . . . . . . . 36% per year 4. 5% cash, 30 days net . . . . . . . . . . . . . . . . . . 60% per year 5. 8% cash, 30 days net . . . . . . . . . . . . . . . . . . 96% per year 6. 1% 10 days, 30 days net. . . . . . . . . . . . . . . . . 18% per year 7. 2% 10 days, 30 days net. . . . . . . . . . . . . . . . . 36% per year 8. 3% 10 days, 30 days net. . . . . . . . . . . . . . . . . 54% per year 9. 5% 10 days, 30 days net. . . . . . . . . . . . . . . . . 90% per year 10. 8% 10 days, 30 days net. . . . . . . . . . . . . . . . 144% per year 11. 1% 10 days, 60 days net. . . . . . . . . . . . . . . . 14.4% per year 12. 2% 10 days, 60 days net. . . . . . . . . . . . . . . . 28.8% per year 13. 3% 10 days, 60 days net. . . . . . . . . . . . . . . . 43.2% per year 14. 5% 10 days, 60 days net. . . . . . . . . . . . . . . . 72% per year 15. 8% 10 days, 60 days net. . . . . . . . . . . . . . . . 115.2% per year

Then there is the matter of expenses; rent, wages, insurances, taxes, depreciation, freight and express, and all the other miscellaneous items that go to make up the total of your cost of doing business. Expenses eat up a business unless controlled. They ought to be so analyzed that you are able to place your finger on items which appear too large, or uncalled for, or which need explanation.

A Daily Exhibit of Your Business.

In order to accomplish this, you ought to keep a record similar to that shown by Fig. 187--a Daily Exhibit of your business.

The advantage of this record is that it will give any battery man daily information as to the following facts of his business:

1. The amount of stock on hand. 2. The amount of gross profit. 3. The percentage of gross profit.

It will give monthly information as to:

1. The expense and percentage of expense. 2. The actual net profit. 3. The percentage of net profit.

Such information will help you to locate exactly when and where your losses come; during what months and from what causes. It will enable you to turn losing months this year into profitable months next year; to tell whether your losses were due to a too great expense account, or to too low gross profits.

The percentage columns on the sheet are the most important, because only by percentages can you make proper comparisons, and know just how your business is headed. You cannot guess percentages; you must have a way of knowing continually what they are, in order to be certain of getting the right return on your investment.

[Fig. 187a "Daily Exhibit" form]

[Fig. 187b "Daily Exhibit" form, continued]

In analyzing this Daily Exhibit, you will note that it is ruled for five weeks and two extra days, in order to provide for any one and all months of the year. The various columns are provided so that the entries in them will give a clear-cut story of the actual state of your affairs, daily, weekly, and monthly. Each column will be considered in the order in which it appears on the form.

First Column--"Merchandise on Hand." In starting this record the first day, the figures entered in this column must be an actual physical inventory of your stock on hand, priced and extended at cost. Do not total this column.

Second Column--"New Goods Added to Stock." The figures entered in this column should be the total value of all new goods received from manufacturers or jobbers on the particular day. If you return any articles to the seller immediately upon receipt, and before putting them into your stock, deduct such goods from the invoices and enter only the net amount in this column. This column should be totaled every week and every month.

Third Column--"Goods Returned by Customers;--Deduct from Sales." The total value of all goods returned by customers extended at the prices charged customers should be entered in this column daily. Every week and every month this column is totaled.

Fourth Column--"Cost of Goods Returned;--Deduct from Cost of Goods Sold." The cost of all goods returned by customers should be entered in this column. The cost prices can always be secured from the Stock Record cards, as previously explained. Total this column every week and every month.

Fifth Column--"Goods Returned to Manufacturers." Sometimes there is occasion to return merchandise after it has been put into stock. In such cases, the money value of the articles sent back to manufacturers or jobbers should be entered in this column. This does not mean such goods as were returned on the day received, and were deducted from the seller's invoice, and at no time have appeared in the second column, "New Goods Added to Stock," but only to such merchandise as was originally entered in the second column, and later returned to the manufacturer. This column should be totaled every week and every month.

Sixth Column--"Goods Sold, Less Goods Returned." Enter here total of selling prices on sales tags for each day, after deducting amount in the third column. Total this column every week and every month.

Seventh Oolumn--"Cost of Goods Sold, Less Cost of Goods Returned." The total of the sales extended at cost prices for each day, minus the amount showing in the fourth column, should be entered in this column. It should be totaled every week and every month.

Eighth Column--"Gross Profits." To arrive at the figures to be entered in this column deduct the amount in the seventh column from the amount in the sixth column. Total this column every week and every month.

Ninth Column--"Per Cent to Sales." This percentage should be figured every day, and every week and every month, and is arrived at by dividing the figures in the eighth column by the figures in the sixth column. It will pay you to watch this column closely. You will be astonished at the way it varies from day to day, week to week, and month to month. If you watch it closely enough, you will soon learn a great deal more about your business than you ever knew before. You do not need to total this column.

Tenth Column--"Accounts Receivable." On the day the Daily Exhibit is first started, the figures for this column must be taken from whatever records you have kept in the past. Do not total this column.

Eleventh Column--"Collections." Every day you collect any money from those customers who run charge accounts with you, enter the amount collected in this column. Total it every week and every month.

Twelfth Column--"Cash Sales." Every day enter the amount of cash sales in this column, and total it every week and every month.

Thirteenth Column--"Charge Sales." The amount of daily sales made to those customers who do not pay cash but run a charge account should be entered in this column. Every week and every month this column should be totaled.

General Calculations. To arrive at the amount of "Merchandise on Hand" after the first day, which is, as has been previously explained, an actual physical inventory, add the amounts showing in the first and second columns, and deduct from this total the sum of the fifth and seventh columns. Enter this result in the first column for the next succeeding day. Continue as above throughout the entire month.

After the first day the figures in "Accounts Receivable" column are obtained by adding together the amounts showing in the tenth and thirteenth column and deducting from this total the amount in the eleventh column. This balance will be entered in the tenth column for the next day, the same procedure being followed for each day thereafter.

"Merchandise on Hand" after the close of business on the last day of the month should be entered in the first column on the line marked "Month Total." This same amount will be carried forward to the first column of next month's sheet and entered on the line of the particular day of the week on which the first of the month falls.

Following the "Month Total" are the "Year to Date" and "Last Year to Date." These figures are important for purposes of comparison. Arrive at total for "Year to Date" by adding the total for the present month to the total for "Year to Date" found on the previous month's sheet. The figures for "Last Year to Date" are taken directly from the sheet kept for the same month last year. It is, of course, evident that this cannot be done until one year's records have been completed.

Expenses and Profits.

Under the heading "Summary" at the bottom of the sheet, provision has been made for finding out how much net profit YOU have made for the month.

On the line marked "Gross Profits" enter the "Month Total" figures in the eighth column. Below this enter all the various items of expense as follows:

(1) Advertising: By advertising is meant such copy, signs, etc., which may be prepared and used for the purpose of keeping the public informed as to your ability to serve them--in other words, any space which is used for general publicity purposes, such as for instance, your card in the classified telephone directory, or blotters, folders, dodgers which you may have printed up and distributed.

Do not load this account with church programs, contributions to the ball team, tickets to the fireman's ball and the like. These are donations, and not advertising.

(2) Electricity: All bills for electrical current will be charged to this account.

(3) Freight: Charges for all freight and express will be made to this account.

(4) Insurance: The total yearly insurance should be divined by twelve, to obtain the amount to be charged to this account monthly.

(5) Proprietor's salary: Many battery service station proprietors do not charge their own living as an expense. That's a serious mistake, of course. If those same men should hire a manager to run their service station, the manager's salary would naturally be charged to expense. The amount of money withdrawn from the business by the proprietor should therefore be charged to expense.

(6) Rent: The amount of money you pay monthly for rent should be charged to this account. If, on the other hand, you own your own building, charge the business with rent, the same as if you were paying it to someone else. Every business should stand rent; besides, the building itself should show itself a profitable investment. Charge yourself just as much as you would anyone else; don't favor your business by undercharging, nor handicap it by overcharging.

(7) Supplies: The cost of all supplies, small tools and miscellaneous articles which are bought for use in the business and not for sale should be charged to this account.

(8) Taxes: The yearly amount of taxes paid should be divided by twelve, in order to arrive at the monthly proportion to be charged to this account.

(9) Wages: The amount of wages paid to employees should be charged to this account. Care should be taken to determine the actual amount for the month, if wages are paid on a daily or weekly wage rate.

(10) Miscellaneous: Any expenses of the business not listed above will be charged to this account. This may include such items as donations, loss on bad accounts, and such like items of expense. You may itemize these into as many headings as you desire, but for the purposes of the Daily Exhibit combine all of them under "Miscellaneous Expense."

All these expense items are then added together, and this total is entered on the line marked "Total Expenses."

Deduct "Total Expenses" from "Gross Profit" to arrive at "Net Profit."

To arrive at the totals for "This Year to Date," carry the figures forward from the previous month's sheet and add figures for present month.

The figures for "Last Year to Date" will be found on the sheet for the corresponding month of last year, and are copied in this column.

All percentages should be figured on sales. The figures shown on each line in the "Amount" columns under the headings "This Month," "This Year to Date" and "Last Year to Date" should be divided by the "Month Total" of the sixth column, shown above, i. e., "Goods Sold, Less Goods Returned."

When you take inventory, the amount of stock should equal "Merchandise on Hand," as shown by the Daily Exhibit. But there will generally be a discrepancy, varying with the size of your stock, and that discrepancy will represent the amount of goods gone out of your station without being paid for; sold for cash and not accounted for; sold on credit and not charged, and the like. It's worth something to know exactly what this amounts to. The place for this information is under "Inventory Variations" on the sheet.

The space headed "Accounts Payable" is provided for recording, on the last day of every month, just what you owe for accounts and for notes, and also the same information for the corresponding date of last year.

Invaluable Monthly Comparative Information.

You see now that by the use of the Daily Exhibit you have a running history of your business by days, weeks and months. But this is hardly sufficient for a clear view of your business, since you will want some record which will tell you what the year's business has been, and how it varied from month to month.

[Fig. 188. Statistical and Comparative Record]

This is provided for in the Statistical and Comparative Record, illustrated by Fig. 188, on which the amount of sales, cost of sales, gross profit, expenses and net profit are entered for each month of the year. All the figures for entry in this record are taken directly from the Daily Exhibit at the end of the month, which makes the work of compiling it a very easy task.

The advantages of a record of this kind can hardly be overstated. The figures in the upper part of this statement will show which months have been profit payers and which have not, while from the figures in the lower part of the report you are able to determine the percentage any group of expenses bears to sales, and are thus in position to subsequently control such items.

Do not let the fear of doing a little bookkeeping work prevent you from keeping these records. They should go a long way toward solving the problems which the average proprietor faces today:

1. Selling his goods and services without a profit. 2. Failure to show sufficient net profit at the end of the year. 3. Constantly increasing cost of doing business.

You may think at first glance that it will require a great deal of extra work to keep these records, but in this you are mistaken. They are very simple and easy to operate. The American Bureau of Engineering, Inc., will advise you where to obtain these forms.

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