Cybernetics × accounting

A firm is a feedback loop.
Its books are the sensors.

The balance sheet is the state of the system: what sits in each tank right now. The income statement and the cash flow statement are two instruments watching flows over a month. One watches the profit tank, the other watches the cash tank. They disagree for good reasons, and those reasons are where firms live or die.

You run a small company that sells DIY thermostat kits. You are the regulator: you set the levers, the market pushes back, the ledger records it, the statements report it, and you steer again.

Levels each adds one mechanism and one idea

Disturbances
Your levers
Firm & market
Ledger
Statements
You compare

Cash and profit-so-far, month by month

Cash Retained earnings

Statements for

Governor Lab

Write the rule. Let it steer.

An autopilot runs the firm for 36 months using only the rule below. Change a knob and the whole run recomputes.

Market

Scenario

Delivery lead time

Months between ordering kits and receiving them. A delay in the effector.

Ordering rule

Forecast reacts

How much last month's demand moves the forecast. 1 = just copy last month.

Safety stock

Months of forecast demand to keep on the shelf.

Correction strength

How hard to close the gap between target stock and actual stock each month.

Count kits already on the way

Financing rule

Gauge it watches

Floor

Borrows when next month's reading looks like falling below the floor. Repays when it is above twice the floor.

Buy workbenches when demand nears capacity

Kits: demand vs orders

Kits on the shelf

Cash · profit so far · bank loan

Open the books at

A firm is a feedback loop.Its books are the sensors.

Levels each adds one mechanism and one idea

Cash and profit-so-far, month by month

A firm is a feedback loop.
Its books are the sensors.