so widely advertised. A mining engineer gives us a striking instance of partial failure resulting from inadequate capital.1

The property was a prospect or undeveloped mine. Open cuts and shallow shafts disclosed pockets of lead sulphide ore averaging over four feet wide, and assaying from $50 to $60 per ton―a valuable ore. Several small shipments were made to the nearest smelter with very satisfactory results. The property was generally regarded as a good prospect with encouraging possibilities for the extension of the ore shoots below the surface. The owner was, however, unable to equip and develop the property himself on an adequate basis. At the same time he would not agree to give a controlling interest to others who were both able and willing to put in the money required, and he was not sufficiently resourceful to devise and carry out some middle course that would be both fair and attractive to all parties. He therefore decided to "go it alone."

For over fifteen years he has made spasmodic and desultory attempts to develop the property. At no one time were his funds really adequate. As a consequence, while the total expenditures have been quite sufficient had they been made intelligently and at one time— to prove the property, practically nothing has been accomplished. The veins, it is true, have been opened up at a depth of some 600 feet below the outcrop, and pay ore has been found there, but not enough work has been done to demonstrate the continuity of the ore bodies from the surface, nor to establish a reliable estimate of tonnage and average value. The net result is that the owner is nearly twenty years older than he was when he obtained possession of the property, has expended over $150,000 in preliminary development, and does not know yet whether he has a mine or only a prospect.

If the venture had been adequately financed in the beginning, the value of the property should have been determined in a year's time and for half the money.

Reasons for Inadequate Capital-Deficient Estimates

Theoretically, the necessity of adequate capital for the operation of a new enterprise will be admitted, and yet enterprises are constantly started without sufficient operating funds. In many cases this is because the owners or promoters are unable to secure 'Harry J. Wolf in Magazine of Wall Street, June 26, 1920.

the capital they need, but in still more cases because they fail to appreciate the requirements. Almost always there is a strong tendency to underestimate the amount necessary or desirable for the particular undertaking. The tyro in business, unaccustomed to matters of the kind, sits down, figures up the necessary expenses, as he sees them, allows a fair percentage for incidentals and margin, and deems the matter settled. The experienced business man knows that at every step and stage of development and operation expenses arise that are either unexpected or larger than expected-modifications of original plans, experimental work, expert assistance, demands for additional equipment, costly delays, and along with it all endless extras that bring the sum total of expenditures far above anything that would at first sight seem possible.

For a very simple illustration, suppose that the establishment of a small publishing business is under consideration. The interested party has written a book which he is confident will fill a long-felt want, and in doing so fill his own coffers. It will, he thinks, also serve as a foundation upon which to build a permanent business. The book will contain, say, two hundred pages. He figures on an edition of three thousand copies bound in plain cloth. As he can have the book bound in small lots as needed, he includes the binding of but 100 copies in his calculation of the investment required. Foreseeing future editions, he wishes the book electrotyped. With the help of his printer he roughly estimates the cost of getting it out as follows:

Composition-200 pages 10 pt. at $1.50 a page....

$300.00

Electros-200 at 85 cents.....

170.00

Paper-20 reams book paper, 38 x 50—120 lbs. at 18 cents.

432.00

As he plans to avoid office expense at first by using his home as selling headquarters, he deems the estimate adequate and liberal, covering practically all the expenditures required to bring the business to the point of operation and profitable returns from sales.

Before sending his copy to the printer he very wisely decides to have it gone over by an experienced editor. He finds much quoted or special matter that is better printed in 8-point type. A number of footnotes are necessary. As a new author is apt to do, he makes many changes in the proof as it is received from the printer, and some few changes in the plates. Also a few charts and a few tables are introduced to make the text clearer; and the author decides to bring in his photograph as an attractive frontispiece. When the printing is done he finds a number of errors that he overlooked in the proof which necessitate an errata sheet. He also decides that five hundred copies will be needed on the first binding. In practice his bill would come in about as follows:

Title page....

38.50

6.00

Table of contents and preface 11 pages at $2.50......

Author's corrections:

27.50

Paper, 224 reams, 38 x 48-120 lbs. at 18 cents...

480.60

Before the book is on the market his investment has run more than $1,000 in excess of his estimate.

Estimating Capital Requirements

This tendency to exceed estimates is a characteristic feature in the development of every business undertaking. For this reason, when the person making the estimate of capital required is not entirely familiar with the particular line of business, a considerable excess should be allowed on every important item over its estimated cost, and in addition a liberal percentage should be set aside for incidentals and operating margins. Beyond this, as a measure of prudence, the estimate should, if possible, be checked by someone familiar with the work.

The amount of capital required for a new undertaking naturally varies with the conditions under which it operates. In the case of an undertaking well within the field of established business and conditions, the preliminary expenses and operating requirements can often be figured out to a nicety by one familiar with that business. Where the enterprise is outside the field of well-established business, or under new conditions, or contains expense possibilities which can only be discovered by actual de

velopment or operation, as in the case of many inventions and mining prospects, capital requirements must be met by liberal estimates and still more liberal allowances for contingencies.

Failure of Capital "en Route "

A consideration of the greatest importance when determining capital requirements is the difficulty of raising further funds for an enterprise if the original funds are exhausted before the business reaches a condition of self-support. If through a miscalculation or through any other cause the original capital proves insufficient and is exhausted before the enterprise has reached the self-sustaining point, the situation is peculiarly unfortunate. The failure to pull through is hard to explain, the enterprise is discredited, and the whole thing is looked upon as at least a "lame duck" if not a complete failure.

Under such circumstances, those responsible usually try to struggle on without seeking financial aid-they do not wish to confess that they have made a mistake, and especially they do not wish to pay the penalty. They endeavor to pull through with the available resources, and in doing so the danger is always present that the undertaking will become so involved that it cannot be rescued from financial disaster.

When an effort is made to raise additional funds for a stranded enterprise, such funds will only be secured with difficulty and on onerous terms. The conditions do not appeal to the man with money. The situation of such an enterprise is well illustrated by the following quotations from an "S. O. S." letter to stockholders recently sent out by the president of an embarrassed mining company.

Since June 1st, 1919, the company has issued $250,000 worth of bonds to pay up past indebtedness, defray running expenses, start 1,000 foot, three-compartment shaft and make changes in the power plant and mill, but, owing to unavoidable delay, high prices of material and labor, the fund was exhausted before the shaft was completed