My Life and Work by Henry Ford (free novel 24 .TXT) 📕

MONEY AND GOODS

The primary object of a manufacturing business is to produce, and if that objective is always kept, finance becomes a wholly secondary matter that has largely to do with bookkeeping. My own financial operations have been very simple. I started with the policy of buying and selling for cash, keeping a large fund of cash always on hand, taking full advantage of all discounts, and collecting interest on bank balances. I regard a bank principally as a place in which it is safe and convenient to keep money. The minutes we spend on a competitor’s business we lose on our own. The minutes we spend in becoming expert in finance we lose in production. The place to finance a manufacturing business is the shop, and not the bank. I would not say that a man in business needs to know nothing at all about finance, but he is better off knowing too little than too much, for if he becomes too expert he will get into the way of thinking that he can borrow money instead of earning it and then he will borrow more money to pay back what he has borrowed, and instead of being a business man he will be a note juggler, trying to keep in the air a regular flock of bonds and notes.

If he is a really expert juggler, he may keep going quite a long time in this fashion, but some day he is bound to make a miss and the whole collection will come tumbling down around him. Manufacturing is not to be confused with banking, and I think that there is a tendency for too many business men to mix up in banking and for too many bankers to mix up in business. The tendency is to distort the true purposes of both business and banking and that hurts both of them. The money has to come out of the shop, not out of the bank, and I have found that the shop will answer every possible requirement, and in one case, when it was believed that the company was rather seriously in need of funds, the shop when called on raised a larger sum than any bank in this country could loan.

We have been thrown into finance mostly in the way of denial. Some years back we had to keep standing a denial that the Ford Motor Company was owned by the Standard Oil Company and with that denial, for convenience’s sake, we coupled a denial that we were connected with any other concern or that we intended to sell cars by mail. Last year the best-liked rumour was that we were down in Wall Street hunting for money. I did not bother to deny that. It takes too much time to deny everything. Instead, we demonstrated that we did not need any money.

Since then I have heard nothing more about being financed by Wall Street.

We are not against borrowing money and we are not against bankers. We are against trying to make borrowed money take the place of work. We are against the kind of banker who regards a business as a melon to be cut.

The thing is to keep money and borrowing and finance generally in their proper place, and in order to do that one has to consider exactly for what the money is needed and how it is going to be paid off.

Money is only a tool in business. It is just a part of the machinery.

You might as well borrow 100,000 lathes as $100,000 if the trouble is inside your business. More lathes will not cure it; neither will more money. Only heavier doses of brains and thought and wise courage can cure. A business that misuses what it has will continue to misuse what it can get. The point is—cure the misuse. When that is done, the business will begin to make its own money, just as a repaired human body begins to make sufficient pure blood.

Borrowing may easily become an excuse for not boring into the trouble.

Borrowing may easily become a sop for laziness and pride. Some business men are too lazy to get into overalls and go down to see what is the matter. Or they are too proud to permit the thought that anything they have originated could go wrong. But the laws of business are like the law of gravity, and the man who opposes them feels their power.

Borrowing for expansion is one thing; borrowing to make up for mismanagement and waste is quite another. You do not want money for the latter—for the reason that money cannot do the job. Waste is corrected by economy; mismanagement is corrected by brains. Neither of these correctives has anything to do with money. Indeed, money under certain circumstances is their enemy. And many a business man thanks his stars for the pinch which showed him that his best capital was in his own brains and not in bank loans. Borrowing under certain circumstances is just like a drunkard taking another drink to cure the effect of the last one. It does not do what it is expected to do. It simply increases the difficulty. Tightening up the loose places in a business is much more profitable than any amount of new capital at 7 per cent.

The internal ailments of business are the ones that require most attention. “Business” in the sense of trading with the people is largely a matter of filling the wants of the people. If you make what they need, and sell it at a price which makes possession a help and not a hardship, then you will do business as long as there is business to do. People buy what helps them just as naturally as they drink water.

But the process of making the article will require constant care.

Machinery wears out and needs to be restored. Men grow uppish, lazy, or careless. A business is men and machines united in the production of a commodity, and both the man and the machines need repairs and replacements. Sometimes it is the men “higher up” who most need revamping—and they themselves are always the last to recognize it. When a business becomes congested with bad methods; when a business becomes ill through lack of attention to one or more of its functions; when executives sit comfortably back in their chairs as if the plans they inaugurated are going to keep them going forever; when business becomes a mere plantation on which to live, and not a big work which one has to do—then you may expect trouble. You will wake up some fine morning and find yourself doing more business than you have ever done before—and getting less out of it. You find yourself short of money. You can borrow money. And you can do it, oh, so easily. People will crowd money on you.

It is the most subtle temptation the young business man has. But if you do borrow money you are simply giving a stimulant to whatever may be wrong. You feed the disease. Is a man more wise with borrowed money than he is with his own? Not as a usual thing. To borrow under such conditions is to mortgage a declining property.

The time for a business man to borrow money, if ever, is when he does not need it. That is, when he does not need it as a substitute for the things he ought himself to do. If a man’s business is in excellent condition and in need of expansion, it is comparatively safe to borrow.

But if a business is in need of money through mismanagement, then the thing to do is to get into the business and correct the trouble from the inside—not poultice it with loans from the outside.

My financial policy is the result of my sales policy. I hold that it is better to sell a large number of articles at a small profit than to sell a few at a large profit. This enables a larger number of people to buy and it gives a larger number of men employment at good wages. It permits the planning of production, the elimination of dull seasons, and the waste of carrying an idle plant. Thus results a suitable, continuous business, and if you will think it over, you will discover that most so-called urgent financing is made necessary because of a lack of planned, continuous business. Reducing prices is taken by the shortsighted to be the same as reducing the income of a business. It is very difficult to deal with that sort of a mind because it is so totally lacking in even the background knowledge of what business is. For instance, I was once asked, when contemplating a reduction of eighty dollars a car, whether on a production of five hundred thousand cars this would not reduce the income of the company by forty million dollars. Of course if one sold only five hundred thousand cars at the new price, the income would be reduced forty million dollars—which is an interesting mathematical calculation that has nothing whatsoever to do with business, because unless you reduce the price of an article the sales do not continuously increase and therefore the business has no stability.

If a business is not increasing, it is bound to be decreasing, and a decreasing business always needs a lot of financing. Old-time business went on the doctrine that prices should always be kept up to the highest point at which people will buy. Really modern business has to take the opposite view.

Bankers and lawyers can rarely appreciate this fact. They confuse inertia with stability. It is perfectly beyond their comprehension that the price should ever voluntarily be reduced.