Warren Buffett (https://en.wikipedia.org/wiki/Warren_Buffett) has not grown uber-wealthy by taking unreasonable risk or investing in the latest and greatest emerging market companies. Not a chance! Rather, he has a formula – invest in companies that have a consistently good service & proven business model to offer their customers, both potential and current. He then looks for the BIG THING. The thing-of-all-things that leads to long term financial success with his business ~ and subsequently, your business—free cash flow.

Free Cash Flow … As best defined by Investopedia

Free cash flow (FCF) is a measure of a company’s financial performance, calculated as operating cash flow minus capital expenditures. FCF represents the cash that a company is able to generate after spending the money required to maintain or expand its asset base. FCF is important because it allows a company to pursue opportunities that enhance shareholder value.

Read more: Free Cash Flow – FCF Definition | Investopedia https://www.investopedia.com/terms/f/freecashflow.asp#ixzz4a2PMYdbm

Taking a free cash flow approach to doing business often changes your perspective. Paying cash for assets on the balance sheet may feel great in the moment, but the drain on cash may significantly impact your free cash flow / cash and replace it with business assets…most of which lose value. For many businesses, financing plays an important part in the free cash equation for success. Equipment needs of businesses are a great example of this situation. Business owners may naturally think of financing the $300,000 equipment purchase, but the $55,000 needed to replace an asset during an equipment failure is purchased with cash. A few of those situations per year and a business has unnecessarily drained cash reserves when a simple monthly payment not only increases free cash flow, but offers other benefits as well.

Financing equipment allows you to more effectively match revenues (from equipment operation) with the expenses of the equipment (monthly finance payments). Financing also helps you more effectively pay only for what you use of a depreciating asset rather than over-allocating cash and actually decreasing your return on investment (cash on cash). Finally, it makes ongoing equipment acquisition easier. If you build in a monthly payment for your equipment needs, replacing the equipment due to failure, age, or technology upgrades doesn’t require a painful allocation of cash. You simply finance the new equipment and align that monthly payment with your already-in-place budget. Adding newly financed equipment to facilitate growth becomes easier as well, because the new finance payments are incremental to the monthly budget as opposed to a huge cash outlay.

At SLS, we may not be able to make you Warren Buffett, but we can certainly help you build a company with more free cash flow. And like Warren…our Midwestern values are far more Main Street than Wall Street. If you want to discover a plain spoken, uncomplicated way to grow your free cash flows with equipment financing…let’s talk.

Call Doug

Doug Fuller

816.423.8021

dfuller@slsfinancial.com