Financial Organization and Management. — If the inauguration of a business take the usual course of large modern enterprises, there will first appear upon the scene a promoter, who discovers undeveloped properties or poorly managed concerns, forms a plan for their de velopment, secures options upon them and puts his project before capitalists. Capital may be represented by a syndicate manager, who acts for a group of banks and large private invest ors in investigating the projects presented. If a project be found meritorious, its financing will be taken over on conditions which ensure adequate control of the subsequent operations of development. A corporation will then be formed which, under its charter powers, elects officers, enters into contracts, issues securities, receives funds, secures plant and equipment and otherwise prepares to do business.
The liabilities of a business corporation may be briefly listed as bonds, short-term notes, preferred stock, common stock, commercial paper and open accounts. The bonds of manu facturing enterprises (unless the business of certain public utilities be included therewith) should represent but a small fraction of the total capital, for the reason that the earnings of such businesses have, in the past, been sub ject to violent fluctuations. Preferred stocks are a business man's risk. They may be de scribed as intermediate in security between bonds and common stocks. They will, in many cases, represent the cash and property contrib uted to the business by the group of interests connected with its organization and develop ment. Common stocks receive dividends only after interest on the bonds and dividends on the preferred stock have been paid. There is no margin of safety to protect them. Their hazard is not so much the correctness of the process of valuing assets as it is the skill of the management in earning income. They are an appropriate investment only for men of means who are intimately associated with in dustrial management.
The financial authorities of a business are responsible to allot the funds raised from the issue of securities as advantageously as possible to the various requirements. A portion will go into buildings and equipment and other relatively permanent forms. This may be designated as fixed capital. Another portion must be reserved for raw materials, finished stock, pay roll and credit advances to cus tomers. This is circulating capital. Fixed capital loses value slowly as a result of wear and tear. Circulating capital changes its form of investment rapidly. A balance in the bank last week may have been paid out as wages and be now represented by goods in the ware house. Next week, if the goods are sold, it may take the form of a credit advance to a customer.
As fixed capital is relatively enduring, a large amount of funds should not be put into such a form until it is certain that the enter prise is to be of a permanent nature. Fixed capital may be of various degrees of specializa tion. The more specialized the form the more difficult it is to sell, and the more its selling price depends upon the hazard of a single set of market conditions. The degree to which it is proper to specialize capital is a function of the conference felt in the soundness of the project. The utilization of fixed capital is a process requiring the continuous supplying of circulating capital. Materials and labor must
be provided to support the process of produc tion. A plant is valueless when not in motion. To keep it under headway money must be constantly poured into it in amounts which in the average case may equal the total capital of the business annually. It is a somewhat common error of business finance to place an unduly large proportion of the assets in fixed form. The homely caution of Poor Richard may well be remembered, "It is easier to build two chimneys than maintain one in fuel?) The financial organization of a private business con nects with the general financial machinery of the country through the company's published reports, through the certified public accountant who vouches for the report he signs and through the general banking' system. It is further connected by the investment bankers who purchase the securities after investigation and sell them to the investing public, by the stock exchanges which exert some slight con trol over the probity of the methods of the corporations whose securities they admit to list ing privileges, by State commissions which are rapidly taking over the functions of 'authoriz ing security issue and by the general machinery of law.
Administration of Manufacturing Proc The highest authority in a business, on matters pertaining to productive processes, may be known as the general superintendent or works manager. In the initial stages of the business this officer will have the leading in fluence in determining the location of plants, the layout and character of buildings and the selection of machinery. When preliminary plans result in the construction of a mechanical automaton, and it becomes necessary to add men and materials and to indicate methods of production, in order that the enterprise, can be come a going concern, the general superintend ent will take on a much expanded range of responsibilities. He will be expected to keep the physical equipment and productive proc esses up to standard and to employ an adequate force of foremen, laborers and skilled men of the various crafts. He will control the progress of work in relation to the demands of the sales department by a schedule and a system of orders, which control all productive labor and the use of material. The design of articles and the accuracy of manufacture is effected through a designing department and a system of inspectors. As a means of improve ment he will use time studies and motion stud ies. The information thus accumulated he will embody in standards, which will be pro mulgated as the prescribed methods. The ideal is standardization, which is such an effective control of performance that every case con forms to the rule laid down. These prescribed methods will be communicated by general or standing orders and by shop orders. In a business of any size, orders should be written. The standing orders, when gathered together, will compose a "book of rules?' The shop orders will be supplemented by instruction cards, to convey precise information as to the materials to be used, the machine or tool to employ, the process to select, the time the task should take, the machine adjustments, etc., etc. A particular instruction card will be prepared in advance for each task, and will be issued from the planning room, for the workman's convenience, each time the job is given out.