THE MOST efficient capitalist in the world is the newsboy. He makes 200 per cent a day.
How? By keeping his money and his goods moving. He starts in the morning with fifty cents. He buys twenty-five papers and sells them for seventy-five cents. He does this three times during the day. Result : At the end of the day he has $1.25. He has sold seventy-five papers and made seventy-five cents profit.
He is truly a capitalist as well as a worker, because he lias no employer. He finances himself and he is paid by results.
He is not a financier, as he expends labor as well as money; and he is not a speculator, as he can get his money back on his unsold copies,
But he is the best illustration of the great importance of keeping money and goods moving.
He makes about $250 a year by the investment of half a dollar, plus a great deal of hard work. This is more than he could make in a steady job, very' likely ; and he has to work only three or four hours a day.
Compare him with a jeweller who has a $25,000 stock of jewellery and whose sales an* $25,(XX) a year.
The newsboy turns his money over 500 times, while the jeweller turns his money over only once. That’s why there is so much more glitter than profit in the jewellery business.
This brings us to a great law of finance: It is not the Amount of your capital that matters so much as its Activity.
Does your capital move once a year, once a quarter, once a month, or once a week?
There are two firms in Lancashire, nearly side by side. One has $40,000,000 capital and 18,(XX) employees; and the other has $4,000,(XX) capital and 800 employees.
Last year each of these firms made the same amount of profit -partly because the small firm is more efficient, and partly because it turns its money over twenty-six times a year.
A baker can do a good business on one-tenth as much capital as a jeweller. He can do this because he turns his flour into bread and his bread into money so quickly. He practically sells out his whole stock every day.
One of the universal reasons why most firms make such small profits is that they have too much money Tied Up.
Too much goods on the high shelves.
Too many machines not working.
Too much raw material.
Too many buildings.
All this means idle capital. It is a sort of paralysis.
Often, two-thirds of the firm’s capital is dead, and the other third has to bear the whole load.
There is no profit to be made out of the possession of goods unless prices are rising.
Avoid White Elephants
rT'HE VALUE of a machine or a building depends upon its Use, not upon its cost. The business world is full of white elephants - expensive things that do not make any money.
Better have an engine of one cat power that runs, than a mammoth engine that stands still.
Better take $1,000 and keep it on the hop, than have $10,000 tied up in dead stock.
The essence of business is Exchange. Money for goods, goods for money, money for goods again! and Quick—that is the secret of big dividends.
Take a case of two furniture dealers, one slow and one fast. Each buys $100 worth of chairs.
The slow one keeps the chairs a year and sells for $150.
The fast one sells them in three months for $125. He buys more and sells in tiiree months for $155. He buys again and sells for $188. He buys again and sells for $225.
At the end of the year, the slow dealer has made $50, but he has charged his customers a high price and will probably lose their trade.
The fast dealer has made S125 at the end of the year. He has paid his sales people more and he has charged his customers less.
Here you have in a few words the reason why one shop doubles its trade, while another shop alongside of it can barely hold its own.
The fast dealer probably spent $25 on advertising his chairs; but, even so, he charged twenty-five per cent less than the slow dealer, and made 100 per cent more profit.
The slow dealer marks his goods up fifty per cent, yet he makes only half as much profit as the fast dealer who marks his goods up only twenty-five per cent. This is a fact that many merchants do not understand.
Your rate of profit depends more upon Quick Selling than upon high prices. It is more profitable to make five I>er cent a month than to make thirty per cent a year.
Moneylenders know this, but very few merchants do.
Money is like brains. It was formerly believed that the bigger a man’s brain was, the wiser he would be; but we know that this is a mistake.
A man may have a very big brain, but if it is slow and sluggish he is stupid.
The main thing in a brain is not size but activity. Many a man with a small head is at the top of a big company; and many a man with a big head is a postman, making his living with his legs.
Almost invariably, when I ask a businessman what he needs most, he replies: “More capital.”
Generally, he is quite wrong. What he needs is to make a quicker use of the capital he has. Any man can double his capital without borrowing a penny, merely by turning over his goods twice as fast.
Don’t overbuy. Don’t overbuild. Always have more customers than goods, and more business than buildings.
It is better to tum a customer awny than to carry goods over. A shop is a temporary depot, not a warehouse—how few' merchants know that!
Keep Your Money Moving. Every dollar is a little worker and you must put it to Work, not to Sleep, so that it will get busy and come back to you in a few weeks, leading a new little dime by the hand.
Editor’s Note: Key number nine will appear in Maclean’s
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