t02 



HORTICULTURE 



April 26, 1919 



sales? Again, if you can, are all the 

 factors in the cost of doing business 

 included in yours? Perhaps you do 

 not know that bricklayers used to 

 bend over and pick up every brick, 

 and that when someone suggested a 

 platform at a convenient level for 

 obviating the bending over, the brick- 

 layers told him they knew their busi- 

 ness better than he did. Notwith- 

 standing, the adjustable platform for 

 bricks is in use everywhere, and 

 bricklayers now lay three to four 

 times the number of bricks they form- 

 erly laid. 



Having proceeded this far, our next 

 step is to inquire if there are any 

 rules to be followed and methods to 

 be employed in our everyday business 

 that have been found practical. Yes, 

 there are! Many of them! But let us 

 consider at this time some of the more 

 fundamental of the practices, one of 

 which is the basis for correct figuring 

 of profits on sales. 



Some advocate the cost of sale as 

 the proper basis, others, the sales 

 price. Let me say here that it mat- 

 ters little which basis you employ, so 

 long as you follow it through cor- 

 rectly. Let us visualize an assumed 

 case of merchandise sales to the 

 amount of $50,000.00; the cost of the 

 merchandise sold being $30,000.00; 

 the gross profit or "mark-up" $20,- 

 000.00; the cost of doing business $10,- 

 000.00, and the net profit $10,000. 



Percentage 

 Sales 

 Cost Price 

 Itasis IJasis 

 100 

 100 60 



Milse sales JM.OOO 



Cost of mdse sold. 30.000 



Gross profit or 



"mark-up" 20,000 



LESS 



Cost of doing busi- 

 ness (selling and 

 gen. expense) ...$10,000 



66% 40 



33% 

 33% 



20 

 20 



Net profit $10,000 



Always keep the basis clearly be- 

 fore you and do not possibly get 

 mixed up, in the above example, and 

 figure that the gross profit is 40 per 

 cent, and take 40 per cent of $30,000 

 or $12,000, which, less your cost of 

 doing business, $10,000, would only 

 leave a net profit of $2,000 instead of 

 $10,000— a shortage of $8,000. This 

 shortage, of course, is equal to 40 per 

 cent of the difference between the 

 proper basis to which the 40 per cent 

 applies, namely, $50,000, and the im- 

 proper basis, or $30,000, of $20,000, at 

 the rate of 40 per cent equals $8,000. 



Such mistakes are not now so com- 

 mon, but do occur even in these days, 

 and, as you can well imagine, with 

 disastrous results. 



As regards the cost of doing busi- 

 ness, in the foregoing example, let me 

 say that though it is the ordinary prac- 

 tice to add this to the merchandise 



cost on a percentage basis, either to 

 cost of merchandise sold or to sales 

 price of merchandise sold, it is not 

 technically correct practice. The un- 

 derlying element in cost of doing busi- 

 ness is time, therefore it would be 

 proper to apply it to the average in- 

 ventory, according to the length of 

 time the merchandise was in hand. 

 This procedure, though not by any 

 means practicable in a great many 

 businesses, is followed by some to 

 very great advantage to themselves. 

 They keep records by weeks, or by 

 months, of the all-over or departmen- 

 tal inventories and expenses, pro-rating 

 these periodic expenses to the average 

 periodic all-over or departmental in- 

 ventories. This gives them not only 

 correct cost of merchandise, increas- 

 ing, as it should, according to length 

 of time in hand, but provides as well 

 a valuable guide to buying. 



This leads us to the interesting 

 question of turnover. Quick turnover 

 is better, any time, than large gross 

 profit on slow sales. The more turn- 

 over, the smaller the margin of gross 

 profit necessary in the merchandise 

 sold. Turnover is usually the number 

 of times the average inventory will 

 go into the cost of sales for the period, 

 though, as in the case of department 

 stores, the merchandise sold at retail 

 prices into the average inventory at 

 retail prices, is correct. 



The average turnover for the ordi- 

 nary retailer used to be two to three 

 times a year, which would be con- 

 sidered satisfactory, but, in these 

 days, the average turnover for the re- 

 tailer must run from four to eight 

 times a year to allow him to remain in 

 business. 



In this connection, the figures com- 

 piled by the System magazine in a sur- 

 vey of different lines of business, may 

 be interesting: 



Grocer makes 10 turnovers a year. 



Department store makes seven turn- 

 overs a year. 



Druggist makes 4% turnovers a 

 year. 



Drygoods makes four turnovers a 

 year. 



Hardware dealer makes 3</ 2 turn- 

 overs a year. 



Shoe store makes 2 1-10 turnovers a 

 year. 



Clothier makes two turnovers a 

 year. 



Jeweler makes 1V 2 turnovers a year. 



Of course, these figures, like all 

 other figures, are based on averages 

 on all sizes and conditions of business 

 in the respective trade divisions, and 

 must be taken with considerable reser- 

 vation and only treated as "average." 

 Some grocers make 20 turnovers a 

 year. In some department stores. 



where the turnover for the store as a 

 whole might be eight, some depart- 

 ments run as high as 16 in their turn- 

 overs, so kindly do not mislead your- 

 selves into erroneous conclusions. 



Turnover is a question of time, or 

 speed. Suppose you had an article to 

 sell 'for $10,000 that cost you $5,000 

 and that your cost of doing business 

 was 20 per cent of sales per year, or 

 $2,000 per year, in this instance. Sup- 

 pose you did not sell it for three years, 

 even though you got full sales price 

 for the article, you would be "in the 

 hole" $1,000. 



Therefore, learn the essential lesson 

 that you hold absolutely nothing in 

 your stock rooms or business estab- 

 lishments for sale, that each and 

 every day is eating up your profits — 

 just as surely as one day follows an- 

 other. As one business man puts it. 

 "Holding stock from season to season, 

 is the shortest road to failure." 

 Again, the principles and practices of 

 correct figuring of profits must neces- 

 sarily have added importance in these 

 days of income and excess profits 

 taxes. How easy it is to fool yourself 

 in the computation of your net profits, 

 and to find yourself paying more 

 taxes than you are required to pay — 

 or perhaps less taxes than you should, 

 which is even a more dangerous 

 eventuality than the other. The other 

 day in helping out a merchant with his 

 income tax, I found he had been de- 

 preciating his assets on the depre- 

 ciated balance basis for years back, 

 but had not been employing the cor- 

 rect method, so that when we readjust- 

 ed figures, his taxable net income was 

 $1,000 less. This occurred in a small 

 business. Think of the possibilities 

 in a large one. 



We could continue at great length 

 on illustrations and examples of the 

 paramount necessity for accurate fig- 

 ures in every line of business, and how 

 can you possibly get accurate figures 

 except through correct accounting — 

 correct both in principles and meth- 

 ods? Scientific accounting is the es- 

 sence of horse-sense, properly applied 

 to the varying conditions met with in 

 modern business. In your particular 

 line of business — flower growing, 

 wholesaling and retailing — you have 

 just as urgent a call for improvement 

 as in any other line of business — 

 more so even. Therefore, it certainly 

 behooves you to get together and com- 

 mence as soon as possible the con- 

 struction of a definite continuous pro- 

 gramme of activities covering the in- 

 vestigation and determination of your 

 costs, sales, methods, ethics and poli- 

 cies, affecting the different divisions 

 of the florists' business, as so many 

 other trades have done. 



