Free cash flow is an important measure of profitability for human scale businesses. As a metric, free cash flow takes into account the need to make ongoing investments in inventory and accounts receivable. It also acknowledges the need to make maintenance expenditures in any equipment or other fixed assets you might have. It represents the cash available to expand production, develop new products, pay dividends, and service debt.
We don’t become overweight because we eat too much over the holidays. We pack on the pounds because of the accumulated effect of excess calories over an extended period of time. The same is true for our business expenses. They become misaligned with our revenues not because we binge spend. Rather, they tend to grow insidiously. We stop noticing when we are making expenditures that aren’t truly necessary.
Years ago as I was teaching a strategy course, I used a case study that continues to haunt me. The case focused on a young company founded by three friends who loved to cook and eat seafood gumbo. They crafted an out-of-this-world recipe based on ingredients bought fresh-from-the-wharf near their Gulf Coast city and set up a small manufacturing operation. The story haunts me because the founders’ milestone for “making it” was placing their products in Walmart stores.
Jala Smith-Huys is an experienced digital marketing and social media strategist who recently launched her own consumer product brand. Dave Bayless spoke with her about using social media to build a human scale business.
Chad Rubin’s first business was Crucial Vacuum, a successful direct-to-consumer ecommerce seller of vacuums, filters, bags, and belts. Frustrated by his inability to find truly integrated software with which to run his business, Chad concluded that he needed to create his own technology solution. In 2014, he founded Skubana, which makes cloud-based operations software specifically for high-volume ecommerce sellers. Dave Bayless spoke with Chad about how technology can empower your ecommerce business.
As we observe a new year, we often reflect on whether where we are is where we want to be. It may not be—yet. Moving through the shifting terrain of today’s economy, we are never finished orienting and reorienting our businesses as they, too, change. The good news, always, is that we can move from where we are in the direction we want to go.
Jim Gregory is the owner of Bikes at Work in Ames, Iowa. The company manufactures heavy-duty cargo trailers for bicycles. That wasn’t always the case. I had the opportunity to speak with Jim about building a sustainable business that has evolved with the market over 25 years. I learned much. I think you will, too.
You’ve decided to apply for an SBA loan. After all, it’s cheap money. Before you start down that path, I’d like you to do something out of the ordinary: Think like a banker. I know. That sounds unpleasant. Even so, the effort may save you brain damage and time.