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Chapter 12. Harvest > Increasing the Free Cash Flow

Increasing the Free Cash Flow

Free cash flow is the amount of cash left after running a stable and efficient business in a defined period—for example, one year. Generally, free cash flow is used to invest in new assets, reduce debt, or return money to investors. For a franchisee, that means when growth of new outlets you own is slowed or stopped, you will begin to take cash out of the business over and above your management salary. That is the essence of a free cash-flow harvest strategy. Let’s review the calculation for free cash flow.

  1. Free Cash Flow

    = Operating Income

    – Taxes on operating income

    + Depreciation and other noncash expenses

    – Increases in net working capital during the year

    – Capital expenditures for the year (for replacement and support of growth)


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