Speech

" ‘t h e * * i * m p *• le m e /* 19 rfLdLj/ur-*-*' t *** d.. ET PROFITS PURPOSE OF BUSINES implements and machinery under cover in or­ der to avoid rust-damage, etc. As to profits, the merchant must be in posi­ WRITTEN BY WM. McC. MARTIN, CHAIRMAN OF THE tion to handle a large quantity in order to BOARD, FEDERAL RESERVE BANK, ST. LOUIS, MO. increase net profits, which after all is the very essence of good business. A thing that doesn’t The purpose of a merchant engaging in profits are, but be able to show the basis on pay isn’t worth while. business is to make profits. The reason he which they are figured. keeps a set of books is to show whether or not Through the Federal Reserve system the NET PROFITS he is making profits. Frequently, however, merchant is placed in a better position than Written for the Net Profit Special by George what show as profits on his books are, in reali­ ever before to increase his net profits. Since R. James, President James & Graham ty, not net profits and, therefore, the merchant his loeal member bank can rediscount the com­ Wagon Co., Memphis, Tenn. is fooling himself. Strange as it may seem, mercial paper of the merchant, he should find there are many merchants in this country to­ it easy to borrow the money from the bank to Certainly net profits is the ultimate object day who are guessing as to whether or not take advantage of the cash discount on his of all business, and the ways and means of ob­ they are making net profits. If their guess is purchases. The merchant should also not be taining a satisfactory net profit constitute the good, they continue in business, but if it hap­ under the necessity of doing so much of his essential elements of making business a success. pens that they are mistaken and that the so- business on open book accounts. He should As the element first in importance, I should called profits are not net profits, they are either be able to get cash for his product or, put the word “ service,” and remembering headed towards disaster. The Federal Trade when he desires to extend time, should find it that “ a servant is worthy of his hire,” I Commission has made the statement that it much more economical to do so through the should have no hesitancy in demanding pay­ has found that “ the majority of retail mer- means of the trade acceptance, which is pay­ ment for the character and quality of the serv­ able at a fixed time and which he can collect ice rendered. through the medium of his bank, feeling sure In the matter of service to be rendered the that it is much more likely to be met at ma­ customer, consideration must be given to the turity than if he had sold on open account. If possibilities of the merchant’s helping the cus­ the merchant takes a trade acceptance, he has tomer increase his earning capacity, and, something that he can easily rediscount with therefore, it becomes the duty of the merchant his local bank, thus turning his capital over to study thoroughly the needs or requirements and in this way increasing net profits. of his customer, his means of producing his ‘ ‘ purchasing power, ’ ’ and acquainting himself, TRADE ACCEPTANCE SYSTEM with the governmental and other forces that Of Importance to Dealers, Says David C. Will, are offering facilities for increasing the pro­ Chairman of the Board, Federal Re­ duction of wealth. serve Bank of Cleveland In the case of the implement dealer, whose How many net profits are never entered on customers must necessarily be engaged in ag­ our books because they have been swallowed ricultural pursuits, he should give special at­ up by the expense of carrying accounts receiv­ tention to the study of such things as the work able, both good and bad? How many gross of the agricultural colleges and extension profits become losses because of the volume of forces, the county agents, the boys’ corn, pig working capital that has to be used in carry­ and cattle clubs, the girls’ canning clubs, and ing such accounts? the business organizations that are all doing much to promote safe and profitable farmingr Every business man with a wholesome re­ Then, too, he should make himself familiar spect for net profits should at once inform with the facilities for increasing the farmer’s himself on the advantages of the trade ac­ capital, through the functions of the federal Wm. McC. Martin ceptance system. The net profits of business farm loan board, and use his best efforts to have would inevitably increase, and the risks of do­ chants do not know accurately the cost of con­ ing business would decrease, if for every con­ farm loan associations established in his com­ ducting their business, and for this reason signment of goods we should all receive, at the munity, with the local bank as headquarters thej^kre not able to price their goods intelli­ time of delivery, actual tangible value in the and the cashier as secretary of the organiza­ gently.” tions. shape of the trade acceptance of the consignee. It is perfectly true that a merchant may do Any reader of The Implement Age who The dealer should at all times keep in mind a great volume of business and still not end has not fully informed himself on the trade the basic fact that these net profits are depend­ the year with net profits. Such being the case, ent upon and governed by the net profits of his acceptance system owes it to his business to do his establishment has the air of prosperity customers, and remember that “ no community so at once. without being really prosperous. can be more prosperous than its wealth pro­ I shall be glad to answer any inquiries on In a financial statement for merchants, ap­ ducers, i. e., the farmers.” proved at a recent conference of the Federal this subject. In order to increase his own cash resources Reserve agents of the twelve Federal Reserve KNOW YOUR GOODS and thereby avail himself of the net profit se- 6anks, there is included for the merchant to curable through cash discounts, less interest, fill out a profit and loss account for his fiscal If Net Profit is Desired, Says M. B. Wellborn, and less clerical expense, the dealer should year, as follows: Chairman of the Board, Federal Re­ study the facilities offered him through the DR. serve Bank of Atlanta federal reserve banks. This is a source of net Actual expense of conducting busi­ This age is fastly developing the use of ag­ revenue or profit than no live merchant can ness ......................................................$ ricultural implements; and, as time rolls on, it afford to overlook. Bad debts charged off...........................$ will, in my opinion, continue to grow even The merchant who depends upon always Withdrawals of dividends paid..........$ more rapidly. buying his goods at a low price, or a price un­ Net profits...............................................$ The retail merchants, if they propose to der the market, or who depends upon “ price” handle this line of merchandise, must have selling his merchandise, is planting a bomb Total ...............................................$ their salesmen study the needs of their re­ that will eventually blow his business out of CR. spective communities, and esnecially a study existence. Gross Profts of the implements he offers for sale, for many Equally foolish is the merchant who has one From merchandise.................................$ a sale is lost by reason of not satisfactorily ex­ price for one customer and another price for From investments.................................$ plaining the detail mechanism of the imple­ some one else. And in the same class is the From other sources...............................$ ment and the labor-saving proposition. man who sells his goods without getting cash With the growing scarcity of labor time is or its equivalent (notes) at the time of sale; Total ................................................$ an important factor on the farm, and the mer­ and the man who, because of improper ac­ From the above, it is seen that a knowl­ chant should always keep on hand sufficient counting, does not KNOW his cost of doing edge in regard to net profits is desired in or­ stoek to replace any broken parts, or be in business. der to arrive at the proper credit rating. In close touch with the manufacturer so that nec­ this same statement, there are other questions essary parts can be ordered and delivered in- “ The foolish man ‘darns’ his luck—the wise asked so as to find out the ‘ ‘ turn-over ’ ’ in the stanter. Many merchants make the error of man ‘mends’ it.” merchandise during the year. The time is keeping new farm implements out in the open already here when a merchant with a growing yard, subject to damage from the weather. “ A man must use his head if he would get business must not only know what his net Arrangements should be made to keep such there with both feet.” Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

William McChesney Martin, Sr. (1917, March 23). Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/speech_19170324_sr.

@misc{wtfs_speech_19170324_sr.,
  author = {William McChesney Martin, Sr.},
  title = {Speech},
  year = {1917},
  month = {Mar},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/speech_19170324_sr.},
  note = {Retrieved via When the Fed Speaks corpus}
}