C games people play with cash flow
https://news.ycombinator.com/item?id=34190849
Gives an example of link not tracked
link not tracked then the next step is link not tracked, then conclusions are link not tracked
I thought it was interesting because it represented a type of thinking error that you and I are likely to encounter in our lives. ^thinking-error
perfectly rational, logically constructed, and not really wrong — but not as useful or as powerful as some other framing.’
(In practice, most of the older entrepreneurs I know seem to understand the problems with such sensemaking. Plausible arguments are dealt with in a simple manner: you try the recommendations that unfold from the analysis, but you remain alert to see if they give you exactly the results you want. If they don’t, you keep link not tracked for the time being, but you continue to look out for a better explanation. And how would you know if you have found a better way of thinking about your situation? Simple: you listen carefully. In the words of Malaysian magnate Robert Kuok, “you learn to distill wisdom from the air.”) ^adopt-a-frame-but-look-for-a-better-explanation
The core idea is simple: I believe the author started from a limited set of link not tracked. If you start from a wrong set of axioms, you would eventually end up with a flawed conclusion. In this case, I think the ensorial.com author started from a deficient understanding of business. ^too-limited-a-set-of-axioms
Talks about the invention of link not tracked
Malone and Magness also had to worry about hostile takeovers, given TCI’s low stock price in the early 70s. They executed a series of complicated financial manoeuvres a year or so after Malone took over, placing a large chunk of stock in a holding company to grant them majority control. Later, they created a separate class of voting stock. These moves gave them hard control of the company, allowing Malone the freedom to focus on righting its finances.
He understood that if he used debt to finance acquisitions, he could keep growing the company, and use the depreciation on acquired systems (plus the write-offs from the loans itself) to delay paying taxes on that cash flow. Third, Malone understood that untaxed cash flows from all of those cable subscribers could be used to a) service the debt, b) pay down some of those loans — only when necessary; Malone wanted to keep the debt-to-earnings ratio at a five-to-one level — but more importantly c) demonstrate to creditors that TCI was a worthy debtor.
Tax-sheltered cash flow could be leveraged to land more loans to create more tax-sheltered cash flow. A standing joke around TCI was that if TCI ever did report a large profit, Malone would fire the accountants.
Amongst business people and savvy investors, Malone’s logic dovetails with a famous saying: ‘cash flow is a fact; profit is an opinion’. Even today, there are people who do not fully understand the games you can play with cash flow. Or — more importantly — they do not understand the things businesspeople would do for better cash flows.
Bezos said: "When forced to choose between optimizing the appearance of our GAAP accounting and maximizing the present value of future cash flows, we'll take the cash flows."
those with a limited understanding of business think that business is all about making profits; those who have actually run businesses know that operating a business is mostly an exercise of managing cash flows. ^profits-vs-cash-flows
A huge chunk of your capital is locked up in inventory. Now your boss needs that cash back, to pay for expenses. You should view the discount he’s giving to customers as a price he’s willing to pay … in order to unlock that cash flow.” ^price-you-are-willing-to-pay-to-unlock-cashflow
A few years after starting in the F&B industry, Kokonas realised that he could charge for a deposit for a restaurant reservation — something that most people thought was impossible. He began collecting money up front. ... that let him pre-order 4 months of steak at half price.
because a cash flow game is essentially taking the money you make, and moving it back and forth in time ^cash-flow-is-moving-money-in-time