Free cash flow is the essence and life-blood of any organization, particularly a small growing company. The common definition of free cash flow is the level of remaining cash available to a company after all expenses, including investments have been paid. Financial management texts define free cash flow as operating cash flow minus gross investment in operating assets, or net operating profit after taxes minus net investment in operating assets. Free cash flow provides the means for financial managers to enhance their company.s value, and provide a positive cash flow statement.

Corporations that have too much free cash flow may run the risk of being cash-rich but investment-poor in terms of building the corporate infrastructure; not investing sufficiently in plant, equipment and human resources necessary for developing and sustaining growth. Conversely, insufficient free cash flow makes it difficult to cover necessary investment in the corporate infrastructure.

However, this balance is the parody of free cash flow; a company with a negative free cash flow position is not always an indication of a poorly run company. A company having a positive cash flow position that makes large investments in its infrastructure could produce a short-term negative free cash flow position. The important point to remember is that no matter the size of a company, the financial focus must be on establishing a positive free cash flow position. Sound financial management practices which yield strong earnings per share are a good indication of a well managed company. However, it is the level of free cash flow which signifies the financial viability of any sized-company.

For the small, emerging biotechnology company, these are essential for sustaining business operations, establishing solid growth and enhancing corporate value. A biotechnology company initially funded by SBIR/STTR grants must look to create immediate cash flow through viable and readily available revenue streams such as sale or licensing of its technology or the sale of therapeutics and treatment practices in order to create free cash flow. As a start-up transitions to the small growth company status, fundamental activities such as understanding market demand, identifying the competition, assessing customer needs and producing products or services that meet customer needs should provide the revenue and the subsequent free cash flow to sustain growth.