Why is FREE CASH FLOW is the most important financial number you care about?

What is Free Cash Flow?

No, it’s not free money.?Even though there has been plenty of free money going around between #PPP Loans, Employee Retention Tax Credit (“ERC”), and other stimulus programs.

I should know, during 2021 I have helped over 300 businesses and nonprofits qualify for these programs, as well as get additional funding through the SBA EIDL program (which expires December 31, 2021 -- CLICK HERE for details).

Free Cash Flow is a financial term that you should know.

It's more important than #netprofit, revenue, sales orders, A/R, or pipeline.

Free Cash Flow is the #cash available to #owners or investors after all the dust settles.

Is there a disconnect between your net profit, bank balance, and your income??Oftentimes, the answer is yes. By understanding Free Cash Flow, and applying specific tactics, you will close the gap between your net profit and bank balance.??

I like to say that "Finance is the Language of Business." By becoming fluent in the language of #finance, your results and profits will improve.

During my career, I have reviewed thousands of financial statements and I can quickly assess the financial health of a company much like a doctor when holding up an x-ray.?The financial statements don’t tell the whole story, but they do tell quite a story! There is usually so much potential profit pent up inside a business, but sometimes it takes an impartial outsider to help you see it. ?

Most business owners are excellent at delivering their product or service, but what happens when they learn and apply the finer points of finance??Why would they want to recalibrate their balance sheet and how could that help them? These questions are not often asked and therefore go unanswered, but they can have positive implications for growth and profitability.

For example, most business owners look at their A/R on a regular (oftentimes daily basis).?However, do they know and apply the power of the A/R turnover ratio??By using simple, fifth-grade math, they can calculate how much working capital increases monthly by simply reducing A/R turnover by a few days.?This could result in hundreds of thousands of dollars in critical working capital, which means CASH!?

Understanding a Profit & Loss Statement is like flying a plane in daylight.?But like any good pilot that wants to fly at night or in adverse weather, they need to be instrument trained.?In finance, this is equivalent to understanding the balance sheet and its relationship to the P&L.?It also includes certain key ratios that help you pilot your plane (business) in adverse conditions.?Anybody can run a business when demand is high, supply is certain, and the economy is booming. But what about when the opposite is true?

Speaking of adverse conditions, we have significant headwinds in 2022: Supply Chain Disruption, #Inflation, COVID, Changes in the workforce to include remote work, the Great Resignation, and an inability to fill jobs.?

How will you handle these tough conditions? I can’t think of a better time to sharpen your saw and improve your financial skills to weather the year ahead.?

After all, you are in business to make money and that metric is not net profit, it’s Free Cash Flow! You tend to get results where you place your focus. I encourage you to focus on Free Cash Flow.

To your success!

Patrick

If you have any questions or comments, reach out to me at [email protected] 443.539.6276