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Systems Management, Robert Kiyosaki
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The human body is a system of systems. So is a business. The human body is made up of a blood system, oxygen system, food system, waste system, etc. If one of those systems stops, there is a good chance the body will be crippled or die. The same is true with a business . A business is a complex system of inter-operating systems. In fact, each item listed on the B-I Triangle is a separate system that is inter-linked into the overall business the triangle represents. It is difficult to separate the systems because they are interdependent. It is also difficult to say that one is more important than another.

For any business to grow , individuals must be accountable for each of the systems and a general overall director must be in charge of making sure all the systems operate to their highest capacity. When reading a financial statement, I am like a pilot sitting in the cockpit of the plane reading the gauges from all the operating systems. If one of the systems begins to malfunction, emergency procedures must be implemented. So many small startup businesses or S quadrant businesses fail because the operator of the system has too many systems to monitor and take care of. When one system fails, such as when cash flow dries up, all the other systems begin to fail almost simultaneously. It is like when a person gets a cold and fails to take care of him- or herself. Pneumonia soon sets in and if it's not treated, the person's immune system begins to break down.

I believe real estate is a great investment to start with because the average investor gets to tinker with all the systems. A building on a piece of land is the business—the system for which a tenant pays you rent. Real estate is fairly stable and inert, so it gives the new businessperson more time to correct things if something begins to go wrong. Learning to manage property for a year or two teaches you excellent business management skills. When people ask me where to find the best real estate investments, I say, “Just find someone who is a poor business manager and you will find a real estate bargain. ” But never buy a property just because it is a bargain because some bargains are cleverly disguised nightmares.

Banks like to lend money on real estate because it is generally a stable system that retains its value. Other businesses are often hard to finance because they may not be considered stable systems. I have often heard the following: “The only time a bank will loan you money is when you don't need it.” I see it differently. I have always found that the bank will loan you money when you have a stable system that has value and when you can demonstrate that the money will be paid back.

A good businessperson can manage multiple systems effectively without becoming part of the system. A true business system is much like a car. The car does not depend upon only one person to drive it. Anyone who knows how to drive it can do so. The same is true for a B quadrant business but not necessarily for an S quadrant business. In most cases, the person in the S quadrant is the system.

One day, I was considering starting a small coin shop that specialized in rare collectable coins, and rich dad said to me, “Always remember that the B quadrant gets more money from investors because investors invest in good systems and people who can build good systems. Investors do not like to invest in businesses where the system goes home at night.”

Sharon's Notes

Every business , whether large or small, needs to have systems in place to enable it to conduct its day-to-day activities. Even a sole proprietor has to wear different hats to conduct his or her business. In essence, the sole proprietor is all systems in one.

The better the system, the less dependent you become on others. Robert described McDonald's in this way: “It's the same everywhere in the

world—and is run by teenagers. ” This is possible because of the excellent systems in place. McDonald's depends on systems, not people.

The Role of a CEO

A CEO's job is to supervise all systems and identify weaknesses before the weaknesses turn into system failures. This can happen in many different ways, but it is exceptionally disconcerting when your company is growing rapidly. Your sales are increasing, your product or service is getting attention from the media, and suddenly you can't deliver. Why? Usually, it's because your systems imploded from the increased demand. You didn't have enough phone lines, or operators answering the phones; you didn't have enough production capacity or enough hours in the week to meet the demand; or you didn't have the money to build the product or hire additional help. Whatever the reason, you missed the opportunity to move your business to the next level of success due to a failure of one of your systems.

At each new level of growth, the CEO must start planning the systems needed to support the next level of growth, from phone lines to lines of credit for production needs. Systems drive both cash flow management and communication. As your systems get better, you or your employees will have to exert less and less effort. Without well-designed and successful operating systems, your business will be labor intensive. Once you have well-designed and successful operating systems, you will have a saleable business asset.

Typical Systems

In the next section is a list of typical systems that successful businesses must have. In some instances, the system required might be defined differently from the way it is listed, but it is still necessary to the business operations. (For instance, “Product Development Systems” might be “Procedures for Providing Services” in a service organization. While the specifics may differ, the basic elements are the same. Both of these require the business to develop the product [or service] that it will ultimately offer to its customers.)

In the case of franchises and network marketing organizations, many of these systems are automatically provided. For the cost of the franchise or membership fee of the network marketing organization, you will be given an operations manual that describes the systems provided for your business. This is what makes these “ready-made” businesses so attractive to many people.

If you want to build your own business, review the list of systems. Although you are already performing many of these functions, you may not have defined them as separate systems. The more you can formalize your operations, the more efficient your business will become.

Systems Required by Every Business for Optimal Efficiency

Daily Office Operations Systems:

Answering the telephone and 800 line system Receiving and opening the mail

Purchasing and maintaining office supplies and equipment Faxing and e-mailing

Dealing with incoming/outgoing delivery needs Backing up and archiving data

Product Development Systems:

Developing product and protecting it legally

Developing packaging and collateral material (e.g., catalogs, etc.)

Developing manufacturing method and process

Developing manufacturing costing and bidding process

Manufacturing and Inventory Systems:

Selecting vendors

Determining product or service warranties offered

Establishing product or service pricing (retail and wholesale) Establishing reorder process for inventory production Receiving and storing product as inventory Reconciling physical inventory with accounting records

Order Processing Systems:

Taking orders and recording the orders—by mail, fax, phone, or online

Fulfilling and packaging the orders Sending the orders

Billing and Accounts Receivable Systems:

Billing customers for the orders

Receiving payments for the orders and crediting customers for payment (whether cash, check, or credit card)

Starting the collection process for delinquent receivables

Customer Service Systems:

Returns procedure for inventory receiving and customer payment return

Responding to customer complaints

Replacing defective product or performing other warranty service

Accounts Payable Systems:

Purchasing procedures and approvals required Payment process for supplies and inventory Petty cash

Marketing Systems:

Creating an overall marketing plan

Designing and producing promotional materials Developing general leads and prospects Creating an advertising plan

Creating a public relations plan Creating a direct mail plan

Developing and maintaining a database Developing and maintaining a website Analyzing and tracking sales statistics

Human Resources Systems:

Hiring procedures and employee agreements Training employees

Payroll process and benefit plans

General Accounting Systems:

Managing the accounting process with daily, weekly, monthly, quarterly, and annual reports

Managing cash with future borrowing needs secured and available

Budgeting and forecasting

General Corporate Systems:

Negotiating, drafting, and executing contracts Developing and protecting intellectual property Managing insurance needs and coverage

Reporting and paying federal and state or other jurisdictional taxes

Planning for federal and state or other jurisdictional taxes Managing and storing records

Maintaining investor/shareholder relations Ensuring legal security

Planning and managing growth

Physical Space Management Systems:

Maintaining and designing telephone and electrical systems Planning permits and fees

Licensing

Ensuring physical security

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