Free cash flow is your job 💸

Hi Everyone,

WeWork filed to go public showing $233 million of profit under a metric it had invented called Community Adjusted EBITDA — a measure that left out rent, marketing, and general costs, and hid the fact that the business had burned $198.7 million in cash. The IPO collapsed once investors saw the numbers.

Free cash flow would have told you the truth much earlier. It's the cash your business keeps after paying for the software, hires, and equipment it needs to keep running, for example. Operating cash flow minus capital spending.

Today we're sharing a question to run every decision through, and three ways to improve your free cash flow.

Before you approve anything

Before you approve the hire, sign the contract, or greenlight the project, ask one thing.

Will this help or hurt our free cash flow in the next 12 months?

The question ignores ROI models and strategic fit on purpose. Both matter, of course, but neither tells you whether the business will have more cash a year from now.

Try it on three ordinary decisions:

A new hire: The salary and everything that comes with it generates a withdrawal from your bank account next month. What the person contributes to revenue is at least 6-9 months away, and only if the hire works out.

A new tool: You sign the contract, and the annual fee comes out of the bank that week. Whether it saves any time depends on how many people on your team actually use it and what they stop doing as a result.

Slow payment terms: The deal signs, and your revenue chart looks great. But if they've negotiated to pay in installments over the year, or 60 days after each invoice, the cash comes in slowly while you're already paying to serve them.

Considering the impact on free cash flow will lead to better decisions, and the three moves below will also positively impact your free cash flow.

Three ways to move the number

Collect faster: For most businesses, the biggest single change is getting invoiced money into the bank sooner. Invoice the day the work is done rather than at month-end. Automate reminders at 7, 14, and 21 days. Tie sales commission to cash collected instead of bookings. Every day you shorten the time from invoice to payment is real money in the bank.

Hold your price: Discounts win deals, but they rarely go away. The 10% you give up to win the deal is the same discounted price they'll expect at renewal (we wrote about pricing under pressure earlier this month)

Watch what leaves the bank: Every seat you renew, tool you keep, and hire you make is money leaving the bank every month.

When Buffer realized in 2016 that it had hired itself into a five-month cash runway, CEO Joel Gascoigne laid off ten people and rebuilt the company around what it could actually afford. Buffer ended 2024 with a net profit of exactly $202,459, and a habit of only spending money it had already earned.

Go deeper

👉 Berkshire Hathaway: 1986 letter to shareholders — Warren Buffett's original argument for watching the cash a business really produces, not what shows up in the income statement.

👉 Nathan Barry: Profit is leverage — how the founder of Kit walked away from a deal worth more than two years of growth, and why he could.

👉 Wistia: Taking on debt to grow our own way — Chris Savage's account of turning down acquisition offers and using debt to force his company back to profitability.

👉 Buffer: Tough news: we've made 10 layoffs — Joel Gascoigne's honest write-up of the day Buffer realized it was five months from running out of cash.

Coming up tomorrow

Tomorrow, we'll cover the short one-on-one to have before your next project kickoff.

Thanks for reading!