BRANCH ACCOUNTS 1. Reasons for the establishment of branches.— When a business undertaking begins to extend the field of its selling operations beyond its immediate vicinity, it becomes advisable to establish branches or agencies. Branches must be distinguished from agencies, for the reason that the former are practically departments of the parent concern, and are more or less self-man aging. The latter are not departments of the par ent concern; the relation between the undertaking and the agent is governed by a special contract. The ad vantages to be gained from the establishment of branches may be summarized as follows: (1) It is much easier to keep in close touch with the trade and the activities of competitors by having in the field an organization whose policies are under the control of the home office, and whose salesmen are directly interested in, and concerned solely with, the product of the concern.
(2) If a large stock is carried at the branch office, deliveries can be more quickly made, and adjustments with customers can be more satisfactorily settled.
(3) Delivery expenses are reduced, because ship ments can be made to the branch offices in carload lots instead of paying less than carload rates for ship ments made directly from the home office to indi vidual customers. The carload rate can be obtained on shipments from the main depot to the branch office, and if the shipper bears the delivery expense, the saving in freight alone will be considerable in the course of a year.
(4) There is nothing to prevent an agent or jobber from ceasing to handle the product of a business con cern at the expiration of his contract. The product sold by an agent or jobber is of course sold to the individual customers of the agent, and the shipper does not have that intimate relation with his ulti mate consumers that he has if the product is handled thru his own branches. Obviously, moreover, a change of agent or jobber may result in a large tem porary loss, or even in some permanent loss.
2. Types of methods to be em ployed in installing a system of accounts for branches will depend upon the degree of authority and con trol which is to be vested in the local management, upon the nature of the business, and upon whether the sales are to be made entirely for cash or for both cash and credit.
Many concerns do not wish the branch managers to know the amount of the profit that the branch makes; if this is an important consideration, the system of accounts must be devised accordingly. It is clear that if the sales of a branch are made for cash, an elaborate system of accounts at the branch office will not be necessary. But if, as frequently happens, the branch makes purchases of merchandise on its own account, it will probably be desirable to allow the branch to keep its own accounts.
3. Simple type; general characteristics.—Some of the widely known chain store businesses furnish good illustrations of the simple type of branch. The branch receives all its merchandise from the main office. The important items of expense, such as rent, salaries and delivery charges, are paid by the home office. The branch makes its sales for cash only. Each branch is supplied with a small amount of petty cash with which to meet expenses not paid by the main office. In a branch of this type, a sys tem of comprehensive daily or weekly reports to be filled out by the local manager and forwarded daily or weekly to the main office, is all that is necessary.
All the sales of the branch will be recorded on a cash register, and not infrequently a daily record of sales is sent to the main office. A separate bank ac count will be provided for each branch manager, in which he must deposit his daily receipts. The bank agrees to allow only the home office to check this ac count, and also to mail to the home office a signed duplicate of the daily deposit slip. It will also be understood that the bank shall wire the home office immediately if the local branch manager fails any time to make the daily deposit.