The B-I Triangle: Cash Flow Management

July 6th, 2006 by Bill Perry in Business, Financial Freedom, business implementation, entrepreneurship, entrepreneurs

This is part 4 in an 8-part series about the B-I Triangle™ put forth by Robert Kiyosaki in his book “Rich Dad’s Guide to Investing“.

The article links are Mission, Team, Leadership, Cash Flow Management, Communications, Systems., Legal, ProductCash Flow Management is absolutely essential to a company’s ability to fulfill the stated mission. Cash Flow is the lifeblood of any business enterprise. Cashflow can be likened to the blood pumping through your body right now. You have a vast network of arteries and veins which carry life-giving and life-sustaining blood and oxygen to different parts of your body. The body, through it’s own autonomic ability to control flow rates in each area, mainains a perfect balance of blood flow to help ensure long life.

Cash Flow is, according to Robert Kiyosaki’s Rich Dad, “the most important word in the world of money.”1
Cash Flow management encompasses one of the most seemingly-boring subjects in the world of money: Accounting.

Accounting is the collection of principles that concern tracking the flow of money into an out of an organization. Along with accounting come the things knows as Financial Statements.

Robert Kiyosaki has stressed the importance of being able to read Financial Statements. If a person gets proficient at reading Financial Statements, that person is now more equipped to be able to evaluate the fiscal health of a business before buying stock, or buying the company outright. Of equal value is the current business owner who knows how to read his own financial statements.

The keeping of regular Financial Statements enables a business to be able to spot trends in the company’s performance over time. If trends can be localized early enough, the business may begin to evaluate what factors led to the trend. If it’s a downward trend, the comapny might be able to reverse a previously made suboptimal decision, or further capitalize from upward trends.

Basic parts of the financial statement are as follows:

Income/Earnigs Statement
Expense Statement
Balance Sheet

The first two are fairly self-explanatory. The balance sheet is a sort of snapshot of where your company is at the time you look at it. The balance sheet shows your company’s net worth, which in it’s basic form is income/assets minus expenses/liabilities.

If accounting and numbers aren’t your thing, you may want to look into hiring an accountant AND a tax attorney. The tax attorney is useful to help keep you abreast of tax law changes and any tax loopholes which might improve your tax position. And, a tax attorney might be typically more effective in the case of an audit than an accountant. If you find yourself under audit, it also can’t hurt to have BOTH of them present with you.

References: 1 “Rich Dad’s Guide to Investing“, Robert T. Kiyosaki, with Sharon L. Lechter, C.P.A.Up next…

“The B-I Triangle™: Communications”

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