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ET PROFITS PURPOSE OF BUSINES
WRITTEN BY WM. McC. MARTIN, CHAIRMAN OF THE
BOARD, FEDERAL RESERVE BANK, ST. LOUIS, MO.
The purpose of a merchant engaging in
business is to make profits. The reason he
keeps a set o f books is to show whether or not
he is making profits. Frequently, however,
what show as profits on his books are, in reali­
ty, not net profits and, therefore, the merchant
is fooling himself. Strange as it may seem,
there are many merchants in this country to­
day who are guessing as to whether or not
they are making net profits. I f their guess is
good, they continue in business, but if it hap­
pens that they are mistaken and that the socalled profits are not net profits, they are
headed towards disaster. The Federal Trade
Commission has made the statement that it
has found that “ the majority of retail mer-

profits are, but be able to show the basis on
which they are figured.
Through the Federal Reserve system the
merchant is placed in a better position than
ever before to increase his net profits. Since
his loeal member bank can rediscount the com­
mercial paper o f the merchant, he should find
it easy to borrow the money from the bank to
take advantage o f the cash discount on his
purchases. The merchant should also not be
under the necessity o f doing so much o f his
business on open book accounts. He should
either be able to get cash for his product or,
when he desires to extend time, should find it
much more economical to do so through the
means o f the trade acceptance, which is pay­
able at a fixed time and which he can collect
through the medium of his bank, feeling sure
that it is much more likely to be met at ma­
turity than if he had sold on open account. I f
the merchant takes a trade acceptance, he has
something that he can easily rediscount with
his local bank, thus turning his capital over
and in this way increasing net profits.

TRADE ACCEPTANCE SYSTEM
Of Importance to Dealers, Says David C. Will,
Chairman of the Board, Federal Re­
serve Bank of Cleveland

Wm. McC. Martin

chants do not know accurately the cost o f con­
ducting their business, and for this reason
thej^kre not able to price their goods intelli­
gently.”
It is perfectly true that a merchant may do
a great volume o f business and still not end
the year with net profits. Such being the case,
his establishment has the air of prosperity
without being really prosperous.
In a financial statement for merchants, ap­
proved at a recent conference o f the Federal
Reserve agents of the twelve Federal Reserve
6anks, there is included for the merchant to
fill out a profit and loss account for his fiscal
year, as follow s:
DR.
Actual expense o f conducting busi­
ness ......................................................$
Bad debts charged o ff...........................$
Withdrawals o f dividends paid .......... $
Net profits............................................... $
Total ............................................... $
CR.
Gross Profts
From merchandise................................. $
From investments................................. $
From other sources............................... $
Total ................................................$
From the above, it is seen that a knowl­
edge in regard to net profits is desired in or­
der to arrive at the proper credit rating. In
this same statement, there are other questions
asked so as to find out the ‘ ‘ turn-over ’ ’ in the
merchandise during the year. The time is
already here when a merchant with a growing
business must not only know what his net



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How many net profits are never entered on
our books because they have been swallowed
up by the expense of carrying accounts receiv­
able, both good and bad? How many gross
profits become losses because o f the volume of
working capital that has to be used in carry­
ing such accounts?
Every business man with a wholesome re­
spect for net profits should at once inform
himself on the advantages of the trade ac­
ceptance system. The net profits of business
would inevitably increase, and the risks of do­
ing business would decrease, if for every con­
signment of goods we should all receive, at the
time o f delivery, actual tangible value in the
shape of the trade acceptance o f the consignee.
Any reader o f T h e I m p l e m e n t A ge who
has not fully informed himself on the trade
acceptance system owes it to his business to do
so at once.
I shall be glad to answer any inquiries on
this subject.

KNOW YOUR GOODS
If Net Profit is Desired, Says M. B. Wellborn,
Chairman of the Board, Federal Re­
serve Bank of Atlanta
This age is fastly developing the use of ag­
ricultural implements; and, as time rolls on, it
will, in my opinion, continue to grow even
more rapidly.
The retail merchants, if they propose to
handle this line o f merchandise, must have
their salesmen study the needs o f their re­
spective communities, and esnecially a study
of the implements he offers for sale, for many
a sale is lost by reason o f not satisfactorily ex­
plaining the detail mechanism o f the imple­
ment and the labor-saving proposition.
With the growing scarcity of labor time is
an important factor on the farm, and the mer­
chant should always keep on hand sufficient
stoek to replace any broken parts, or be in
close touch with the manufacturer so that nec­
essary parts can be ordered and delivered instanter. Many merchants make the error of
keeping new farm implements out in the open
yard, subject to damage from the weather.

Arrangements should be made to keep such

implements and machinery under cover in or­
der to avoid rust-damage, etc.
As to profits, the merchant must be in posi­
tion to handle a large quantity in order to
increase net profits, which after all is the very
essence of good business. A thing that doesn’t
pay isn’t worth while.

NET PROFITS
Written for the Net Profit Special by George
R. James, President James & Graham
Wagon Co., Memphis, Tenn.
Certainly net profits is the ultimate object
of all business, and the ways and means of ob­
taining a satisfactory net profit constitute the
essential elements of making business a success.
As the element first in importance, I should
put the word “ service,” and remembering
that “ a servant is worthy of his hire,” I
should have no hesitancy in demanding pay­
ment for the character and quality of the serv­
ice rendered.
In the matter of service to be rendered the
customer, consideration must be given to the
possibilities o f the merchant’s helping the cus­
tomer increase his earning capacity, and,
therefore, it becomes the duty of the merchant
to study thoroughly the needs or requirements
of his customer, his means of producing his
‘ ‘ purchasing power, ’ ’ and acquainting himself,
with the governmental and other forces that
are offering facilities for increasing the pro­
duction o f wealth.
In the case of the implement dealer, whose
customers must necessarily be engaged in ag­
ricultural pursuits, he should give special at­
tention to the study of such things as the work
of the agricultural colleges and extension
forces, the county agents, the boys’ corn, pig
and cattle clubs, the girls’ canning clubs, and
the business organizations that are all doing
much to promote safe and profitable farmingr
Then, too, he should make himself familiar
with the facilities for increasing the farmer’s
capital, through the functions of the federal
farm loan board, and use his best efforts to have
farm loan associations established in his com­
munity, with the local bank as headquarters
and the cashier as secretary of the organiza­
tions.
The dealer should at all times keep in mind
the basic fact that these net profits are depend­
ent upon and governed by the net profits of his
customers, and remember that “ no community
can be more prosperous than its wealth pro­
ducers, i. e., the farmers.”
In order to increase his own cash resources
and thereby avail himself of the net profit securable through cash discounts, less interest,
and less clerical expense, the dealer should
study the facilities offered him through the
federal reserve banks. This is a source of net
revenue or profit than no live merchant can
afford to overlook.
The merchant who depends upon always
buying his goods at a low price, or a price un­
der the market, or who depends upon “ price”
selling his merchandise, is planting a bomb
that will eventually blow his business out of
existence.
Equally foolish is the merchant who has one
price for one customer and another price for
some one else. And in the same class is the
man who sells his goods without getting cash
or its equivalent (notes) at the time of sale;
and the man who, because of improper ac­
counting, does not KNOW his cost of doing
business.
“ The foolish man ‘ darns’ his luck— the wise
man ‘ mends’ it.”
“ A man must use his head if he would get
there with both feet.”


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102