Ask a business owner how things are going and you’ll probably hear about revenue. Maybe headcount. Maybe new logos or new offices.
What you won’t hear? “We’re generating $150K of real, usable cash every year after taxes, debt, and CapEx.”
And that’s a problem.
Too many businesses operate off what I call the iceberg illusion.
They see the tip above the water (profit, the bank balance, the sales report) and think it’s the whole picture. But beneath the surface lies the real weight of the business:
- Working capital traps
- Timing mismatches (AR vs. AP)
- Debt repayments
- Tax obligations
- Growing pains
- CapEx needs
Like an iceberg, the part that matters is what you don’t see. That’s what can sink you.
And yet, we keep managing the business based on the tip.
This week, we’re going to look below the surface. Because profit might make you feel good, but steady-state cash flow is what actually keeps the business afloat.
WHAT IS STEADY-STATE CASH FLOW?
Steady-State Cash Flow is a term I made up myself, but one that I feel like strips away the most “Accounting fluff” possible.
In short, Steady-State Cash Flow is the recurring, reliable cash your business generates after covering core operations, maintenance CapEx, taxes, and debt, but before any growth investment or distributions.
This is the cash your business can actually count on.
t’s your real cash engine.
Everything downstream (growth, distributions, hiring, debt paydowns) depends on this foundation.
It helps us determine:
- What you can safely take out
- What you can afford to reinvest
- When you push the growth pedal (and when you can’t)
You don’t have to guess. You don’t have to hope. You just have to track it.
HOW TO CALCULATE IT (SMB EDITION)
To understand it, we want to start with our Statement of Cash Flows.
In essence, we take our Operating Cash Flow and make adjustments to get Steady-State Cash Flow.
Since most aren’t super familiar with the SCF, though, let’s walk back and talk briefly about what makes up Operation Cash Flow:
- Start with Net Income
- → Add back non-cash items (depreciation, amortization)
- → Adjust for working capital changes (AR, AP, Inventory)
- = Operating Cash Flow
This tells us what cash has been generated from day-to-day operations. Many assume this is Net Income, but as you see above, there are quite a few areas that can impact what actually makes it to the bank account.
Once you have Operating Cash Flow, we’re going “Off Statement” here and making our own special adjustments.
– Maintenance CapEx
– Tax Set-Asides
– Debt Service (principal + interest)
= Steady-State Cash Flow
Maintenance CapEx is a bit of a guess, but if you have historical maintenance cost you should be able to get close. For Tax set-asides, look at historical effective tax rates in comparison to Net Income and carry that forward.
We just talked about the two types of CapEx (maintenance and growth) and you’ll notice we’re not subtracting those.
You’ll also notice we aren’t subtracting owner draws.
That’s because this number is the floor or the amount you can safely build from.
Think of this like your Maintenance Cash Flow. It’s not just what came in. It’s what’s left after your basic ongoing business obligations are covered, or the “steady state cash flows.”
WHY THIS NUMBER MATTERS
This number matters because Profit is theoretical. It’s easily gamed and distorted by timing, accounting choices, and non-cash noise.
And our number, Steady-State Cash Flow, doesn’t lie.
It’s what’s actually left after the bills are paid and the equipment is maintained. It’s the number that prevents you from saying, “Wait, I thought we had more cash.”
If you’re building your strategy, your distributions, or your growth plan on top of Net Income, you’re flying blind.
Let’s say you have $500K in profit.
After working capital swings, maintenance CapEx, debt, and taxes? You might have $150K of steady-state cash.
That’s a wildly different reality. But it’s the one you need to live in.
USING IT IN PRACTICE
This can still feel a bit opaque, so we’re going to walk through specific decisions that it changes and ways you can use it in your business.
We want to highlight: this isn’t just a number you calculate once. It’s a number you build your business around.
OWNER DRAWS
Use SSCF to anchor your owner draw policy. Want to avoid the “$250K toy withdrawal” problem? Great, put boundaries around your QOLDs, tax set-asides, and reinvestment based on this number. We talked about these here, so reread if you need a refresher.
In situations with multiple owners, this framework gives you clear rules to follow, removing some of the stress from these often fraught situations.
MANAGING CAPITAL DECISIONS
Before making a big investment, check it against SSCF. Compare the project cost to your steady-state cash flows. If the project eats X% of your steady-state cash, it better be a slam dunk. If not, maybe wait, or look for a smaller bet.
ADD IT TO YOUR REPORTING
Add SSCF to your monthly internal dashboard. Track it like you would profit or revenue. Watch how it moves over time. Erosion here is a red flag before the bank balance shows it.
USE IT IN SCENARIO PLANNING
When running best/worst case models, SSCF gives you the base case. Plan for the worst from here. It also helps define your business’s “stress threshold.”
Now, more than before, you can understand how different variables impact your overall business stability.
Also, remember when we talked about offensive and defensive action plans? Using this number in those scenarios can give you more confidence that you’re acting at the right time… when it actually hits your pocketbook.
LONG-TERM STRATEGIC PLANNING
Build your strategic planning around increasing SSCF instead of Net Income or Revenue.
This will help you not only build a more stable business but also one that optimizes for the right type of growth. Whether the “right type” is reinvestment or owner draws, SSCF provides the clearest picture of the true decision you have to make.
WRAPPING UP & NEXT STEPS
Remember: SSCF is not gap. It’s not taxes. It’s not flashy like revenue.
Your CPA won’t care. Your advisors might be confused. Your employees could think you’re full of it.
But it might be the most important number in your business.
Because when profit is up, but SSCF is down, you’ve got a problem.
And when SSCF is up and stable? You’ve got options.
So forget profit and track the cash you can count on.
Because when the water gets choppy, it’s not what’s above the surface that saves you.
It’s what’s below.
Take some time this week to look at your steady state cash flow over the last 3 years. Look:
- Annually
- Month-by-Month
See what your trends are based on what you know of the business.
I’d love to hear what you learn!
If you're interested in going deeper on this, I'm considering putting together a webinar where we talk through this process. Click here and if there is enough interest, I'll reach out when we get it setup.
