Free cash flow (FCF) is the cash a business generates after paying all operating expenses and capital expenditures needed to maintain or grow the business. It is the cash truly available to owners, lenders, or for reinvestment. Free cash flow can be very different from net income because of timing differences, depreciation, and capital spending — and it is the closest cash-based measure of business value creation.
Free cash flow is calculated by starting from operating cash flow and subtracting capital expenditures (purchases of equipment, vehicles, buildings, software with multi-year useful life). Operating cash flow itself starts from net income and adjusts for non-cash items (depreciation) and changes in working capital. FCF is what's left over after the business has covered everything required to keep running and grow. Owners, lenders, and acquirers care about FCF more than net income because it answers the question: how much cash does this business actually generate that I could pull out without breaking it?
Free Cash Flow = Operating Cash Flow − Capital Expenditures or: FCF = Net Income + Depreciation & Amortization − Change in Working Capital − Capital Expenditures
FCF is the most honest single measure of business health from an owner's perspective. A business with strong net income but heavy capital reinvestment (a restaurant doing a remodel, a manufacturer buying new equipment) can have negative FCF — accurately, because the cash isn't available to the owner. A business with modest net income but low capital needs can have strong FCF. Owners considering a major decision (buying a building, hiring an executive, taking a distribution) should base it on FCF, not on net income, because FCF is what actually shows up in the bank.
Fynso calculates FCF monthly from your accounting data, decomposing the difference between net income and FCF so owners understand why they differ. The brief flags when FCF is meaningfully lower than net income — usually due to a working capital build (AR or inventory growing) or capital spending — so owners can decide whether to accept the gap or take action to close it. Looking at trailing 12-month FCF surfaces the real cash earning power of the business, independent of any single month's noise.
Service business
An agency with $400K of net income, $30K of depreciation, $50K of working capital build, and $20K of capital spending generates $360K of FCF ($400K + $30K − $50K − $20K). The owner can take roughly $360K out without harming operations — $40K less than the net income would suggest.
Restaurant
A restaurant with $180K of net income but $120K of equipment replacement and $40K of working capital reduction (selling down inventory) generates FCF of $100K ($180K + depreciation − $120K capex + $40K working capital). Capital-intensive years can suppress FCF dramatically — making rolling 3-year FCF a more useful number than any single year.
SaaS
A SaaS with $200K of net income, $40K of deferred revenue growth (positive working capital from prepaid annual subscriptions), and almost zero capex generates $240K of FCF — higher than net income because customer cash arrives in advance. This is the structural reason SaaS valuations are high relative to net income.
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