Understanding Free Cash Flow for Startups | Finance Case Study

I teach you how to understand free cash flow and profitability for an eCommerce startup in this finance case study.
✅ Download the Excel template: bit.ly/FCF_startups
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We learn not only about the calculation and definition of free cash flow, but I teach why free cash flow is so essential for managing startups.
This finance case study is packed with discussions about 3 statement financial models, eCommerce business models, and of course different profitability metrics.
You'll be a free cash flow master after watching this!
Sections:
0:20 intro to our eCommerce finance case study & free cash flow
1:23 setup: startup has positive net income but negative cash flow, what's going on?
3:15 income statement walkthrough for eCommerce startup
7:16 balance sheet discussion (inventory, debt, capitalizing software development)
11:40 explanation of the three sections of the cash flow statement
13:27 free cash flow definition
By the end of this video, you feel very comfortable reading the 3 financial statements to understand profitability - I guarantee it.
If you have questions - leave a comment below and I'll try to help. Cheers!
#freecashflow #financecasestudy #ecommerce

[@eric_andrews]

Questions? Let me know in the comments happy to discuss.
💡 Also, if you want to learn which finance frameworks the top 1% of founders use to scale their startups to massive outcomes, check out my free webinar ⇒ www.ericandrewsstartups.com/financeforstartups

[@piagupta2]

Such an informational video Eric. One quick question to arrive at enterprise value do we need to discount the free cash flows or the net cash flows. Thanks in Advance!

[@eric_andrews]

Free cash flow because that is what is available to the business to pay debt (or whatever it wants, but that is the cash available to pay out to owners/creditors in whatever way they want). Net is the cash flow AFTER owners are paid. Free cash flow is the cash flow before the financing section where you would see all that. I have another video on that here.
ua-cam.com/video/Gm0Xn_MidZ8/v-deo.htmlsi=pwIsgI-0Zi1dAqde

[@KeepMovingDave]

I need to build two FCF profile for two separate projects to determine which of the two is the best option to pursue. (Construction projects). Can you assist with this?

[@eric_andrews]

Construction is not my industry, but fundamentally the calculations for FCF are always the same if you can build the rest of the model

[@sicarty]

Freaking awesome video. Very helpful

[@eric_andrews]

Glad it was helpful Simon!

[@sicarty]

@@eric_andrews do you have a video to show how to project retained customers on subscitpions? We have a mix of one time and subsciptions

[@asadyousafzai2904]

Eric thanks for uploading such informational content, one point I would like to bring to your attention, I think you have missed incorporating Interest Expense in the statement of cash flows and hence in FCF.

[@eric_andrews]

Hey thanks for the comment! Yes so interest expense is actually already included in net income (in the interest & taxes portion of the income statement), so to put it on the cash flow statement a second time would be double counting it. In the US we usually present the cash flow statement using the indirect method (as I showed), and the way you are mentioning I think is more of the direct method. But just to be clear, both are correct and have the same math but are presented slightly differently. Cheers!

[@nocancelcultureaccepted9316]

Thanks, Eric.
Could you imagine in the next few years finance and accounting will be taking over by AI? I don’t see why AI would run into any problem with analysis, do you?

[@eric_andrews]

Absolutely will be taken over, I don't know to what extent but I think a lot of it. Imagine being able to ask a chat bot for the type of analysis that currently analysts perform - "give me a chart of R&D spend vs. software revenue over the last 4 years", "show me the customer LTV vs. CAC on our hardware revenue assuming all the sales & marketing come from these 3 employees" etc. I think people will still be asking the questions but I have a hard time imagining any industry or career where the grunt work/heavy lifting won't be done by computers. So you need to focus on the learning the strategy and asking the right questions to defend your career. The technical skills can be automated.