Music Trade Review -- © mbsi.org, arcade-museum.com -- digitized with support from namm.org
SEPTEMBER 19,
THE
1925
MUSIC TRADE
REVIEW
Advocates Co-operative Financing for
Ohio Music Merchants
Charles H. Yahrling, of the Yahrling-Rayner Co., Before the Annual Meeting of the Ohio Music Mer-
chants, Presents Plan for Formation of Company Which Would Discount Retail Music
Merchants' Paper—Analyzes the Merchants' Financing Problems at the Present Time
T
H E R E is probably no part in conducting
a retail music store that causes the pro-
prietor or the one responsible for the
success of the store as much concern as
financing the business, for a business not prop-
erly financed cannot expect to grow or be suc-
cessful.
There are several ways by which a business
can be financed, and I am referring, of course,
to the music business and to the piano business
in particular. It depends a great deal upon how
much volume a dealer desires, for the more vol-
ume he does the more money is required to
handle it.
If a dealer is satisfied with a small volume,
has a low overhead and does not aspire to get
rich in a few years (something that does not
happen to many music dealers in a lifetime),
then his financing should not be hard to handle,
provided he gets a reasonable amount of cash
business, good down payments and short terms
and collects his payments when they are due.
But if a dealer desires volume, is ambitious
and wishes to expand his business there is only
one safe plan, and that is to buy goods on the
same basis (or practically so) on which he sells
them. I am assuming, of course, that the dealer
has no great amount of capital to start with,
which is usually the case.
There are two ways in which this can be han-
dled—one is to buy from the manufacturer on
long time, giving him a series of notes maturing
on the same basis (or practically so) as the cus-
tomer pays, using the customer's paper as col-
lateral, which the manufacturer is rightfully en-
titled to if he extends the dealer long time.
This also tends to keep the dealer within bonds,
keeps him honest, so to speak, both with him-
self and his manufacturers, and does not allow
him to expand more quickly than his capital
permits.
If a dealer is operating on this basis, selling
goods to people who really can afford to pay
for them, getting a fair down payment, say, not
less than 10 per cent, a contract for the balance
maturing, say, in not more than thirty months,
and collecting it within that time, he should
have no trouble in financing the piano end of
his business. I speak of the piano end, as this,
after all, is the real profitable end of the music
business. Overhead, of course, has much to do
with it, but I am presuming in this case that
the overhead would not be in excess of 25 per
cent of the net volume of business done.
Another safe plan by which a dealer can ex-
pand his business is by using his leases to pur-
chase goods through the several security com-
panies that specialize in handling piano paper.
This costs the dealer a little more than the
other plan, but is a safe and sane plan on which
to expand a business. In no case should a
security company be used for the purpose of
securing cash, as this costs the dealer much of
his profits (in fact, I might say in these days
of high selling cost all of his profits) and ties
up too much of his paper.
Bank borrowing is a hazardous business, es-
peciatly on which to expand. A dealer should
hold his bank credit in reserve for extreme
emergency,if he is to play the game safely.
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Either of the above plans should put a dealer
in a position to buy his goods for cash in eight
to twelve years, depending largely, of course,
on the volume of business done, time given on
sales, cash payments, his ability to collect, his
overhead and the amount of capital put into the
business at the start.
This brings to me the thought that if a
bureau of finance could be formed in connection
with our Ohio Association many thousands of
dollars could be saved our members annually.
If it is possible for other security companies
to handle piano paper, pay large salaries to
executives and good dividends to stockholder's,
why is it not possible for our Association to do
the same thing and turn these profits back to
the members in dividends much the same as
we are doing through our insurance bureau?
I believe that if a pool could be formed
whereby a hundred dealers would put in $1,000
each a company could be formed under the
direction of our Association that would be able
to handle a large portion of the paper of Ohio
dealers.
The plan would be to issue each dealer going
into this a certificate or note with a guaranteed
interest return of, say, 7 or 8 per cent. The
money thus secured would be used to purchase
paper, and against this paper bonds could be
sold and the proceeds used to purchase other
paper. As an investment these bonds would be
as safe as any bonds on the market, as they
would not only be backed up by notes of the
customer but endorsed by the dealer as well
and in addition secured by a mortgage on the
instrument. These bonds would always have
back of them customers' paper at the ratio of
$1,200 for each $1,000 issued.
The supervision of this finance bureau would
have to be handled by an experienced man, of
course, one who has had experience in finance
companies. The bureau would operate on this
plan: no money would be advanced to the
dealer, but the finance bureau would, upon re-
ceipt of the dealer's paper with authorization
on his part, pay the manufacturer for the goods
purchased the preceding month, taking all cash
discounts.
The discounts saved would be put into the
operating and discount fund, and any money
remaining in this fund at the end of each fiscal
year, after deducting operating costs and inter-
est on bonds and notes issued, would be re-
turned pro-rata according to the amount of busi-
ness handled through the finance bureau.
For example, say a dealer owed a manufac-
turer for $2,000 worth of merchandise and this
was subject to a cash discount of 5 per cent
if paid on the tenth of the month following,
the dealer would send the bureau $2,400 in inter-
est-bearing customers' paper and an authoriza-
tion to pay the manufacturer $1,900. The $100
discount would be deposited in the discount or
stabilizing fund, $400 would be credited to the
dealer's reserve account, which would be re-
turned to him monthly on the basis of 20 per
cent of the amount of collections sent in on
the paper.
If the cost of handling this paper, including
operating expense, averaged only 75 per cent of
the discount saved, the dealer would receive at
the end of the year $25 of this discount as a
dividend on this transaction. This would mean
Iwo things to the dealer in the operation of his
business. Make him independent in his buying,
give him an advantage of buying for cash from
all manufacturers, thus relieving him of being
under any obligations to any manufacturer. The
cost to him would be no more t,han buying
on four, eight and twelve months or longer,
and only about half the cost if he paid for his
goods through a security company.
(
This plan may not be probable, but it is pos-
sible and is worth giving some thought, espe-
cially by the dealers who are looking far into
the future.
In conclusion I might say that my experience
has taught me that the three important factors
in financing a music business are: "Get all the
cash down possible"; "Cut the time down as
low as possible, thirty months should be the
maximum"; "Collect payments when due: keep
down the overhead"; "Don't expand faster than
your capital will permit"; "Don't give notes that
you know you will not be able to meet, thereby
keeping your credit slate clean and your busi-
ness in a healthy condition."
Rosenfield and Friedman
Form Distributing Concern
Well-known Trade Members Organize Music
Trades Distributors to Act as Manufacturers'
Representatives
Louis D. Rosenfield and Albert Friedman, both
well known in the music trade, have organized
the Music Trades Distributors for the purpose
of acting as manufacturers' representatives, with
headquarters at 115-117 West Twenty-third
street. The new concern has been appointed
sales representatives for the Powerola, a new
radio set to operate direct from the lighting
circuit and without batteries, and also represent
the Nutmeg Record Corp., manufacturers of
records. The company will also handle several
lines of cabinets, piano benches, stools, scarfs,
cushions and covers in New York, New Jersey,
Pennsylvania, Delaware, Maryland and the Dis-
trict of Columbia, covering this territory with a
traveling force.
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