How Money Really Works – Part 2 Business Income

In the first part of this larger topic, I talked about how some people think of money and how it works at a personal level.

In Part 2 I cover how it works at a business level and how you can get as much as you need and why there is no real shortage of money.

The Big Picture – The Big Flow

Picture the entire Gross Domestic Product (GDP) of a nation or the world. This is a measure of the flow of value that is changing hands. It the cumulative value created by everyone in the economy measured in money. Actually it is not the total value it is the compensated portion of the value.

No one actually has this money in their possession. In fact, there does not even need to be that much physical money in circulation because money is only needed for the exchange and then is in flow again. Most of the exchange occurs electronically these days.

The economy is a giant flow. The giant flow is made up of countless smaller and larger flows.

Giant Flow
Every person and every organization intercepts a piece of that flow and returns it back into the flow one way or another.

Interrupted Flow
How Do You Get More Money?

People create value by working. Companies create value through products and services. Some value is quasi-real (tied to the physical world) and some is perceived or soft value. For instance, real estate is tied to the physical world and some perceived value. Watching a movie has mostly perceived value and does not deplete the physical world significantly.

(We won’t consider the criminal activities of theft or fraud where the flow is interrupted for no exchange of value.)

So if you are running a business, you need to access the flow of money by intercepting it. There is no limit to the number of times the flow of money can intercepted as long as it stays in motion.

You do this by creating a product or service that has value. If what you do has value you can get paid for it. People will buy your value as long as the price is less than the cost. The more value you generate for that person, the more flow of money you can intercept.

More Value More Flow

So one customer, one transaction transfers value to your customer and in return you get money. If you have repeat business, the one customer will periodically get value and give you money.

To increase your share of the flow, you can either create more value for each customer or you can increase the number of customers you have (or both). The number of customers you have is your reach. The more people and customers you reach, the more value you are creating in the world and the more money you can intercept in the flow.

Reach

But you don’t keep that money. You have staff to pay. You have other expenses. You have pay taxes.

The money flows out to others who provide value and intercept the flow.

This happens over and over and is the basis of the giant flow.

Giant Flow with interception

Money is in motion.

Why There Is No Shortage

Some physical things in the world actually do have a physical shortage. For example, there is only so much real estate along the coast of California. If you want a private home on the beach you have to convince someone else to sell it to you. However, this is only valuable if people want it.

For much of the stuff we consume, there is no physical limit (at least that we have to worry about right now). There is no limit to how many people can watch a TV show. There is no limit to the amount of massages that can be given. The pace of the creation of these types of goods and services is increasing as is the perceived value.

In the case of money, there is no limit to the number of times it can be intercepted or the amount that can be intercepted. How many times has that twenty dollar bill in your pocket been exchanged? It is a simple formula: create value, get customers, and intercept the flow.

The rich don’t sit on hoards of money like some crazy scrooge. They spend it and invest it. The investing of money means more spending and the creation of more jobs and more flow. The rich have the added benefit of being able to tap into the flow in more ways, in greater quantities.

Both of these activities increase the flow of money and the number of opportunities to intercept it. Since money is an artificial creation and no longer tied to the real world, there is no limit to how it can flow.

There is no shortage of money, only a shortage of flow.

And most times, the shortage of flow is only an attitude.

As long as you can generate more value (real and perceived) for people than you take out in money, there is no real limit on how you can tap into. Similarly tapping into the flow does not really take away someone else’s ability to tap into the flow as long as they are generating more value than they are taking out.

“Your income is determined by the value you create for each person and how many people you impact or touch with that value.” Bob Burg

(Continued in Part 3)

By | 2017-04-04T15:05:53+00:00 December 20th, 2011|Categories: Uncategorized|

About the Author:

Doug Wagner is an entrepreneur, President and Co-founder of Sunwapta Solutions. Sunwapta’s mission is to help businesses transform from surviving to thriving, sustainable growth. From strategy to implementation, this means marketing, sales, managing your brand and delivering consistent value. Get more clients and keep them.