![]() ![]() When the time comes, you’ll need to have a few things in hand, not the least of which is the money to make it happen. ![]() At some point, you’ll want to grow and expand. No business can - or should - remain static forever. Why levered free cash flow is critical for your small business It boils down to different stakeholders having different priorities. On the other hand, your debt partners (lenders) are focused on unlevered cash flow as the better indicator. And though this is not an ideal situation, it may be temporary and thus may not cause too much concern about whether your business is financially healthy- but it all depends on who you ask.Įquity holders are more concerned with your levered cash flow. For example, if your company’s expenses exceed its earnings, you’ll have a negative levered cash flow. The margin between levered and unlevered cash flow numbers is a strong indicator of a company’s financial health. If you need to purchase new equipment, hire new employees, or move into a larger space and are looking for financing, your lender will look at your levered cash flow numbers to determine your risk and potential for success. Levered cash flow shows potential for growth and expansion. Each is critical, especially to potential partners, investors, or anyone interested in buying your company. Unlevered and levered cash flow will appear on your balance sheet as separate items. Free cash flow indicates gross cash flow rather than net. ![]() Free cash flow is the amount of money left over when all outflow is subtracted. You’ll also come across the term free cash flow (FCF), which is likely what you’re more familiar with. Unlevered cash flow represents the money you have before paying all those bills. Levered cash flow is the amount of money your business has left over after paying all bills and other financial obligations, including operating expenses, interest payments, etc. But what is levered free cash flow? For that matter, what is unlevered cash flow, and what’s the difference between these two line items and your garden variety cash flow? Too many small businesses fail because they are unable to manage day-to-day expenses. Small business accounting is challenging, but if there’s one thing you can always count on, it’s that cash flow is still king. ![]()
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