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Lessons from Great Business Leaders: “Cash-Based Management” (Kazuo Inamori)

  • Media
2026.03.04

To foster a thriving startup ecosystem, we must look back and learn with humility from the legendary leaders who built global enterprises from the ground up.

In this series of “Lessons from Great Business Leaders”, we will share the words of the visionaries and thinkers who have influenced us most, reflecting on how their philosophies have shaped our own experiences in business and life.

This second installment was written by our group’s advisor Yoneya.

1. “Cash-Based Management” – Kazuo Inamori

“Cash-based management means focusing on the actual movement of money to keep management simple and rooted in the essence of things. My first fundamental principle of accounting is that it must be a tool for managing on a cash basis.”

Excerpt from Practical Study: Management and Accounting, by Kazuo Inamori. Published in 1998 by Nikkei Inc.

2. Reason for Selecting This Passage

When the first edition of Practical Study: Management and Accounting was published in 1998, the Japanese economy had been trapped in a long, dark tunnel following the collapse of the Heisei Bubble (known internationally as the Japanese asset price bubble).

While there are many theories regarding the nature of this bubble, I believe it was essentially a fiction decoupled from the reality of cash. At the time, Japanese society was entranced by the real estate myth—the unwavering belief that land prices would rise forever. This allowed companies to use inflated property values as collateral to secure bank loans, creating monetary assets out of thin air without needing to prove the ability to actually generate cash flow. This speculative cycle, borrowing money to buy property that couldn’t pay for itself, eventually collapsed. The illusion faded, leaving behind a mountain of non-performing loans and marking the end of the era.

Inamori’s chosen title of Practical Study implies a field of study or science backed by hard reality rather than mere academic theory. I believe he chose this name out of a sense of crisis regarding a Japanese economy that had chased theoretical gains from risky business instead of actual enterprise.

Inamori expressed the essence of business through a simple maxim: “Measure what comes in, control what goes out.” He argued that the starting point of management is a truth so simple a middle school student could understand it: “Maximize your income, minimize your expenses, and the difference is what stays with you. That’s all there is to it.”

However, as society develops, and social systems and transactions reach a high level of complexity, our accounting standards—which mirror those systems and transactions—also become complex. Concepts like accrual basis or mark-to-market accounting can sometimes obscure the actual movement of cash.

Having served as an auditor and a financial reporting lead for listed companies, I recognize that while adhering to formal accounting standards when reporting finances is vital for corporate governance, what truly drives business growth is simple management accounting aligned with the actual flow of money.

From here on, while in the process of sharing my key takeaways from Inamori’s philosophy, I will also break down the differences between financial accounting and management accounting.

3. Financial Accounting is for Stakeholders; Management Accounting is for the Leader

Financial accounting is designed to report a company’s status to an external audience of stakeholders, such as shareholders, banks, and investors. Precisely because it serves many purposes, the rules are strict and necessarily complex.

Listed companies have the strictest rules. This is because they answer to a vast number of stakeholders, including international investors, and because comparability is of the utmost importance. This concept of comparability exists to ensure that investors can evaluate different companies using the same yardstick. For example, if Company A and Company B in the same industry calculated their profits using completely different sets of standards, an investor would have no way of determining which is the superior investment. Because of this, companies are required to prepare financial statements based on incredibly detailed and rigid rules, and auditing firms carefully verify that these standards are being followed to the letter.

Even for unlisted companies, the need to report their status to their stakeholders based on financial accounting standards does not change.

・To their investors, these reports prove profitability and ROI (Return On Investment) relative to other companies.

・To their shareholders, these reports demonstrate how capital is being used efficiently to grow their companies.

・To banks and creditors, these reports build up trust that loans can be repaid reliably.

However, there is one problem with this. The more elaborate these rules become to satisfy external needs, the more complicated that financial accounting becomes. As a result, the simple movement of money that is so essential to business becomes difficult to see. This is the constant dilemma of financial accounting.

On the other hand, rather than being bound by rules such as those, management accounting is a system designed freely by the leader to improve profitability and guide the company toward growth. If financial accounting is the infrastructure that supports external trust, management accounting is the instrument panel in a cockpit, allowing the leaders to judge, “Where are the sources of growth and problems for our business? Where should we concentrate our resources to improve profitability?”

So, how can a leader ensure these cockpit instruments are functioning correctly to lead the company toward higher profitability?

4. Four Pillars of Management Accounting I Learned from Practical Study

Based on my reading of Practical Study, I have identified four essential areas for effective management accounting.

①Making Profitability Visible Enough for Everyone to Participate

Inamori famously advocated for “amoeba management”, where an organization is subdivided into small, self-reliant units. The goal is to create a state where everyone—from those generating sales to those incurring expenses—has a sense of ownership regarding profitability. When you break down profit and loss all the way to the level of those in charge of specific areas, the numbers become personal, so employees will naturally seek to understand what’s at the heart of an issue. This clarification is the first step in management accounting, and makes possible the selection and focus required to deploy limited resources where they matter most.

②Managing Available Funds to “Stay in the Center of the Wrestling Ring”

Inamori used the sumo metaphor of “staying in the center of the wrestling ring” to describe a management style that maintains a constant margin of safety. Accordingly, this second point of management accounting is about managing your cash flow so that you can fully grasp how much surplus funds you actually have available for use, including the factors that cause it to fluctuate.

Simply creating an ordinary cash flow statement is not enough, in my opinion. You must clarify exactly how your business’s profit translates into cash.

In addition, you have to constantly follow working capital (fluctuations in accounts receivable, accounts payable, and inventory) and keep visualizing exactly how much funds are available right now for future outflows (bonuses, corporate taxes, and dividends).

Think of this as the fuel gauge in your cockpit. Only when this gauge is accurate and predictive can a leader step forward into aggressive investment without being shaken by unforeseen events.

③Thoroughly Recovering Investments to Support a Lean, Muscular Business

Management accounting isn’t just about calculating ROI (Return on Investment); it’s about ruthlessly tracking whether the money you’ve sent out is circulating back without getting stuck.

Inamori famously shared his “Ceramic Pebble Argument”: if a high-tech ceramic component ever becomes unsellable, it is no longer any different from a pebble on the side of the road. Following this logic, even if something is recorded as an asset in financial accounting, it is not a true asset in management accounting if it fails to generate cash flow.

For instance, labor costs spent on unfinished projects or products are accumulated as assets in financial accounting, which acts as a factor that inflates reported profits. However, if that work is never converted into cash through the collection of sales, then in actual business management terms, it is nothing more than excess fat—a condition where cash has simply flowed out of the company. To eliminate this fat and restore a healthy circulation of funds, you must track the movement of invested cash using honest numbers.

In other words, you must constantly grasp how long it took for what amount of the invested cash was recovered, and what margin of profit (that is, ROI) it achieved. This consistency is precisely what trims away the excess fat that burdens a company, allowing it to maintain a lean, muscular build, which results in sustainable growth.

④The One-to-One Correspondence Principle

The final point is ensuring every figure matches the facts of monetary movement. Inamori called this the One-to-One Correspondence Principle. I believe this is the foundation of trust for not only management accounting, but financial accounting, as well.

Modern accounting has become incredibly complex, incorporating estimates like impairment losses and fair-value adjustments. However, no matter how sophisticated the system becomes, the essence of business remains the simple movement of cash. Understanding the reality of cash flow is, in my opinion, the only starting point for a leader seeking the insights needed to grow their company.

5. Message to the Reader

On the long-haul flight of business management, in order to know your current position and keep flying until you reach your destination, you don’t need impenetrable financial theories. What you need is management accounting that acts as a reliable cockpit instrument reflecting the true situation of your company’s funds.

Even when the weather of the market changes and visibility drops, I believe this accurate instrument will allow you to choose the optimal flight path toward growth without hesitation.

At D-POPS GROUP, our vision is to realize a Venture Ecosystem. We focus on creating a platform that enables companies within our Ecosystem to grow sustainably, supported by the hands-on guidance of our advisors.

(For more on this, check out “Venture Ecosystem: A Platform for Growth and Sustainability”.)

I hope this article provides valuable perspective for founders and business leaders as they navigate their own journeys.

D-POPS GROUP Executive Officer, President’s Office Head

Yoshihiro Yoneya

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Clients who take up too much time with low profitability; clients who make no effort to implement agreed-upon terms; clients who lack the will to revive their failing businesses; those who always start from a place of negativity: holding onto these relationships just because “the customer is king” is a choice that erodes the company’s future. A decision not to renew a contract can also be necessary for healthy management. Interestingly, companies that have the courage to say ‘no’ will ultimately attract better customers. Relationships with clients who align with your corporate culture, maintain mutual respect, understand your worth, and continue making efforts to grow become trust-based partnerships that go beyond mere business transactions. Rather than your prices, these customers choose you based on your merit, and become long-term fans. While sales is a job that involves being chosen, it’s a job that involves choosing your associates. 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  • Media
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D-POPS GROUP is a collective of companies that integrates actual businesses and technology together, a concept that we denote as “Real Business x Technology x Group Synergy”, aiming to realize a Venture Ecosystem that will continue to be indispensable to society even 100 years from now. Measuring the efficiency and profitability of a store location is indispensable for managing physical stores, which is at the heart of “Real Business”. In this article, we will explore sales per tsubo※, which is a critical metric used in Japan for this very purpose. ※The Japanese unit of measurement tsubo is defined as an area approximately equal to 3.3 square meters. The principle of ‘sales per tsubo’ can be considered as directly equivalent to sales density (in either sales/m2 or sales/ft2) with a simple conversion factor. Sales per tsubo refers to the amount of sales generated per tsubo, which will vary by industry. For example, supermarkets with high foot traffic and department stores or electronics retailers dealing in more expensive items will usually generate higher sales per tsubo. In explaining how this metric functions in practice, we will focus on the consumer electronics industry, for the sake of consistency in comparison with our previous articles on Inventory Turnover and Revenue per Employee. 1. One of the Three Key Elements of Store Management We previously looked at examples of inventory turnover (which affects cash flow and, in turn, a company’s balance sheet) as well as revenue per employee (which mainly relates to personnel expenses, and thus impacts P&L). Sales per tsubo primarily relates to rent and, like personnel expenses, is a vital indicator for P&L. Together, inventory, personnel expenses, and rent form the three essential elements of physical store management. If you haven’t read the previous installments on inventory turnover or revenue per employee, I encourage you to do so to see the full picture. 2. Calculating Sales per Tsubo Simply put, sales per tsubo is an indicator of a store’s productivity. The higher the figure, the better. It is generally calculated by dividing annual sales by the total sales floor area (in tsubo). For example: ・A store with ¥50 billion in annual proceeds and a sales floor of 4,000 tsubo earns ¥12.5 million per tsubo. ・A store with ¥1.5 billion in annual proceeds and a sales floor of 1,000 tsubo earns ¥1.5 million per tsubo. ・A store with ¥400 million in annual proceeds and a sales floor of 80 tsubo earns ¥5.0 million per tsubo. ・A store with ¥400 million in annual proceeds and a sales floor of 80 tsubo earns ¥4.0 million per tsubo. Averages vary widely according to areas and types of business. In the suburbs, an electronics store might earn around ¥1.5 million and a hardware store only ¥500,000, while a convenience store and a drug store could reach ¥5 million and ¥4 million, respectively. Factors include how frequently a product gets purchased, unit prices, the size of the products sold, and whether the location is urban or suburban. Notably, while suburban stores may have lower efficiency, their rent is also significantly lower. Therefore, one cannot simply compare sales per tsubo in isolation, but rather view it in the context of local real estate costs. 3. Why is Sales per Tsubo Important? To explain why sales density is critical, let’s look at the following example. As explained above, comparing companies in different locations (urban vs. suburban) or with different product categories is not an effective comparison because rent and unit prices differ too greatly. Therefore, just as we did in the previous article regarding sales per employee, we will use two rival electronics retailers as examples. They sell the same products and are both located in urban areas. (These model companies are fictional but based on the numbers from actual businesses.) Metric Company B Company C Store Count 24 45 Sales Floor Area 75,000 tsubo 74,000 tsubo Sales Per Tsubo ¥10.09 million ¥6.00 million Total Sales ¥750 billion ¥440 billion Ordinary Profit ¥50 billion (6.7% margin) ¥4 billion (0.9% margin) The Company B featured here is the same one from our previous discussion on sales per employee. Company C is a group-managed company with many franchises; for this example, we have extracted only the data for their urban store brands. The figures have been aligned with the fiscal year of the sales per tsubo data, and the floor area has been reverse-calculated from the sales and efficiency figures. These two are known competitors, both operating in urban centers and often opening stores adjacent to one another in major hubs like Shinjuku. Here, I want to draw attention to floor area versus the sales per tsubo. Company B uses 75,000 tsubo to generate approximately ¥750 billion in sales, whereas Company C uses 74,000 tsubo to generate approximately ¥440 billion. When converted to sales per tsubo, Company B stands at ¥10.093 million and Company C at ¥6.002 million. While both companies boast very high efficiency, their total floor areas are nearly identical (around 75,000 tsubo). If you take the difference in their sales per tsubo (¥4.091 million) and multiply it by that 75,000 tsubo of sales floor, you see a difference of over ¥300 billion in total sales. This gap represents the difference in revenue. If we calculate the gross profit for both companies using the industry average of 30%, the gap in gross profit alone is nearly ¥90 billion. It would be quite complicated to calculate their exact costs of rent, so we won’t do that here. However, both are urban retailers in similar locations, so if we assume their rent is roughly the same, this difference in gross profit translates directly into a difference in bottom-line profit. There is a ¥46 billion gap in ordinary profit and a 5.8% difference in profit margin between Company B and Company C, and it should be clear that sales per tsubo is one major factor driving this disparity. As mentioned in the previous article, even with minor differences, the gross profit margin in the electronics retail industry—regardless of the company—generally hovers around 30%. Whether in this industry or any other, when companies handle the same products at a similar scale, there will seldom be any large discrepancies in gross profit margin. In this comparison, as stated, a ¥90 billion gap arises from sales per tsubo. When competing companies sell the same products, in similar locations, using similar floor space, I believe that inventory turnover and sales per employee are the only other metrics that could account for such a massive difference in management efficiency. This is not unique to our model case. In restaurants, apparel stores, supermarkets, or any brick-and-mortar locations, there is no escaping sales per tsubo. Achieving a sales per tsubo that significantly outperforms competitors in similar locations leads directly to a major advantage in the unavoidable competition of business. 4. Key Strategies to Increase Efficiency By now, I suppose you recognize the importance of sales per tsubo, but the next question is how to increase it. There are several key strategies, and I would like to highlight the most representative examples below. ① Focus on purchase frequency or unit price Even if unit prices are low, like groceries or daily necessities, high purchase frequency makes it easier to drive up sales per tsubo. Conversely, for high-unit-price items like luxury brands, the high price per transaction compensates for lower frequency, allowing for high efficiency. From this perspective, it is perfectly logical for community-based drugstores to carry food and daily goods that are bought more frequently than medicine. Similarly, it is a sound strategy for electronics retailers to expand their lineup to include a mix of high-purchase-frequency consumables and high-unit-price hardware. ② Optimize product size and eliminate wasted space In short, this means displaying small products without leaving any gaps. This is plainly visible if you look at Don Quijote, convenience stores, drugstores, or urban electronics retailers. While some stores carry large items, the focus is on smaller goods packed tightly together all the way to the ceiling. From the perspective of sales per tsubo, this is a highly rational display strategy. Take electronics retailers as an example: urban stores are often branded as “　　　 Camera”, like Yodobashi Camera, while suburban stores are “　　　 Denki” (i.e., electronics), like Yamada Denki. There is a reason for this. In the past, urban stores were so small that if they stocked refrigerators and washing machines, they would have no room for anything else. Consequently, urban stores focused on cameras, watches, portable devices, beauty appliances, and small office equipment. Suburban stores, benefiting from lower rent, could afford the lower efficiency of large appliances. This specialization was an inevitable result of optimizing for sales per tsubo. Historically, there used to be a number of urban stores that did focus on large appliances. Just by looking at Akihabara today, one can see that these have mostly been consolidated into the most powerful stores, and only a few of those remain. This, too, was an inescapable outcome driven by sales per tsubo. ③ Master cross-selling and up-selling Cross-selling and up-selling can lead to significant improvement through store-wide effort. When you go to buy a suit, most stores will suggest a matching shirt or tie (i.e., cross-selling). When you look at PCs, many stores will suggest one with a high-performance i-series core processor rather than a cheaper model (i.e., up-selling). Up-selling changes the unit price per item, and as the price goes up, so does sales per tsubo. Cross-selling increases the number of items purchased per customer, which raises the total transaction value per person and, by extension, the sales per tsubo. The examples above are the primary ways to increase efficiency. While there are other factors, the ultimate key—as with inventory turnover and sales per employee—is ensuring employees are educated on the importance of this metric. Success comes from management with a human touch, where the company and staff constantly innovate in procurement, product display, and customer service to boost efficiency, supported by technology that can visualize inventory and sales data. Ultimately, the leap in management efficiency through improving sales per tsubo is also built upon the intersection of “People × Technology × Management Strategy”. 5. Conclusion In this article, we discussed sales per tsubo. In the industry of physical stores, there is no business that does not occupy space. Optimization of space is quantified in Japan as sales per tsubo, which leads to the maximization of operating profit and provides a major competitive advantage over rivals in similar locations. Sales per tsubo is strongly affected by product characteristics (price, size, sale frequency), product assortment and display techniques (filling gaps), and customer service techniques (cross-selling/up-selling). In other words, the catalyst for increasing efficiency lies in the constant ingenuity of both the company that defines the product concept, and the employees who actually perform the procurement, display, and service mentioned above. With this discussion of sales per tsubo, we have now covered the three essential elements of store management: inventory, personnel expenses, and rent. By reading this series—including the previous articles “Inventory Turnover” and “Sales per Employee”—the key points of store management should become much clearer. What we at D-POPS GROUP want to convey through this three-part series is that business is built by people. The customers who purchase products are people, and those who devise strategies and utilize technology are also people. While it is impossible to win in competition without mastering technologies like AI, technological skills alone cannot ensure survival. We believe that business success is not just about good technology or a good strategy; it is about the intersection of “People × Technology × Management Strategy”. Based on this philosophy, D-POPS GROUP aims to realize a Venture Ecosystem by supporting startup companies in order to solve societal problems. We hope that you enjoyed this article and look forward to working with you in the future. D-POPS GROUP Managing Executive Officer Tetsuya Watanabe
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2026.01.15
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