Evening public ledger. [volume] (Philadelphia [Pa.]) 1914-1942, 1919-04-05
THE PROBLEM OF THE PROFIT
SHARING PLAN
Correcting a Mistaken Idea


rTHIS Is the story that Charles Magnus
/ told Bruno Duke that September
morning--not however, until Walter had
removed the breakfast ware and had
quietly shut the door behind him.
He cleared his throat, a mannerism
which marks the Fastener, and be-
gan--
"Mr. Duke, we have big hardware
iobbing business, one which our father
started twenty-five years ago. Our sales
men cover most of New York state, Con-
necticut and part of New Jersey. We
have sixty-three employees. and, very
hardworking, faithful people. they are.
James snorted. "Hardworking, fiddle
sticks! Just eye servers J!
mo, James. I'm sure you don't mean
that" Turning to Duke, he continued:
I'VE have in round figures er"-he
looked inquiringly at James, who said
testify:
For Gods sake, Charles. either tell
Mr.. Duke the whole thing or nothing" :"
+ with no sign Of annoyance Charles
proceeded I'VE have two hundred thou
sand dollars capital and our sales are
a million and a half a year. After pay
forty Thousand dollars. Are those suffl-
cient figures for your purpose, Mr..
Duke?'
"Yes, but we had perhaps better check
them up as we go along as to be sure
YOU have made no mistake. In your
expenses do you charge up salaries to
yourself and your brother?"
"of course We do. Mr. Duke-we
aren't children, we know how to ana
lyze our business finances" James
growled.
IaI
gravely as he spoke but some propri-
etors forget that they should receive a
salary from their own business on the
same scale as they would receive IL
working for some one else and that such
salary is not profit from their business,
for they would earn that salary work.
ing for other people and have their
money invested in stocks or real estate,
or any kind of security which will earn
money for them without any supervision
on their part"
"Yes, yes" said James impatiently,
I'VE know all about that"
Very good. Then I presume that
before closing your books you credit
yourselves with interest on your in
vestment?"
A puzzled look flashed between the
brothers. Charles now spoke
1T fear do not comprehend
You say you have a profit Of $+0.-
OOG?" They both nodded. And a capi-
tai of s200.o00?" again two vigorous
mods Now. have you credited your
self with $4,000 interest on the invest
ment--which is per cent Of $200,000T'
NO." snapped James, ''of course not.
We've drawn our salary as we should,
but as for the rest-the S40,000-that is
what we have for our investment.
What's the sense of splitting 1t into two
items? BY investing it ourselves we
make $4,000 instead of $4,000,
Exactly" agreed Duke, but let us
suppose that you had borrowed that
money; you would have had to pay 6
per cent, let us cay. for 1T. Is that
reasonable?'
They both agreed rather cautiously
that it was.
Duke refilled and relit his hookah
before going on.
Then in that case your profit would
have betn $28.000 instead of 100000"
Again two hesitant mods. $50, for the
investment, the capitalists who borrowed
the money would get $4,000. You two
gentlemen for your work would receive
your salary while the business would
show a profit of s2s,000 In a word,
gentlemen, you must dissociateI your
selves from the business and you cam
not say that the business has made a
profit until reasonable return has been
Paid to the owners of the capital
"If you want to get a true view of
your own personal revenue, you must
look upon your business as something