“Why, how much is this wretched account of mine, Will? I didn’t know I owed you a cent. It can’t be very much.”
“Well, it all depends upon what you call very much. It’s something like thirty-five thousand dollars.”
“Thirty-five thousand dollars! Why, man, you must be dreaming,” and the capitalist turned to his telephone and called up the general manager of his mail-order business.
“Why, yes,” came back the cheerful, confident tone of the optimistic young manager, “we do owe them around thirty-five thousand, I think. I supposed, of course, you knew all about it. I’ve been sending my reports in every week.”
“But why haven’t you paid it? Certainly your sales are big enough and your income from them good enough for you to pay your bills.”
“Well, I’ll tell you; it is taking us just a little longer for us to get on our feet than I had expected. Then, after your decision not to put any more money into the business, I found it necessary, in order to round out and complete our line, to add some new items which cost us quite a little. But we are in good shape now and the sales are increasing. We shall soon be able to take care of all of our outstanding obligations.”
“How much are your outstanding obligations?” asked the capitalist, with a sinking heart.
“Well, about two hundred and fifty thousand dollars, I should say. But it won’t take us long to clean that up now that we’ve squared away.”
“You’d better come right over here and bring your books with you. I want to go into this thing.”
It took only a few hours’ investigation of the books to convince the capitalist that his mail-order business was hopelessly insolvent. It took expert accountants to find out why it was insolvent. The trouble was that the young manager had proceeded with only the vaguest and roughest kind of an estimate of cost, based, not upon facts, but mostly upon his own superb guesswork. New business had been brought in by reducing prices. “Low prices” had been one of the slogans of the young man’s campaign, and he had cut under all of his competitors. On the other hand, there had been the slackest kind of management inside. Overhead expenses had mounted and mounted. The young man had been altogether too easy and generous in fixing salaries, granting promotions and increases, and in giving positions to those who applied. He was really a splendid young fellow, with a sympathetic heart and a generous hand, and it was very difficult for him to turn away anyone who could tell an artistic hard-luck story. Expensive equipment had been purchased which had far greater capacity than the needs of the business required; therefore, many machines and other fixtures had stood idle seventy-five per cent of the time, eating up money in interest charges, depreciation, space, light, heat, and other expenses. In addition to these out-and-out expenditures, there were dozens of little leaks in all the departments of the business, all busily draining away not only possible profits, but the working capital, and, finally, the limit of the concern’s credit.