Operating Cash Flow: The Cash Metric That Determines Survival
Most finance teams track Operating Cash Flow (OCF) as a reporting requirement for the board deck.
That misses the point: this metric measures whether your operations are self-sustaining or consuming external capital—which determines your negotiating position with investors, lenders, and acquirers. Positive OCF means you control your timeline. Negative OCF means the market controls it.
In a world where 40% of B2B SaaS companies have less than 12 months of runway, OCF is the difference between strategic optionality and emergency fundraising at punitive terms.
This guide breaks down KPI-CF-001: Operating Cash Flow — what it measures, how to calculate it, how to improve it, and which tasks and processes move it.
Quick Facts
- Category: Cash Flow Ops
- Owner: CFO or Financial Controller
- Frequency: Monthly
- Unit: Currency (USD, EUR, etc.)
- Valuation Link: Cash Flow
What This KPI Measures
Definition: Net cash generated by core operations over a period.
Formula:
Operating Cash Flow = Cash Flow from Operations (as reported in cash flow statement)Alternatively, using the indirect method:
OCF = Net Income + Depreciation/Amortization + Changes in Working CapitalPlain English:
Operating Cash Flow shows how much cash your business generates (or burns) from its core activities—selling products, delivering services, paying employees, and managing working capital. It excludes cash from financing (debt, equity) and investing (Capex, acquisitions).
Example Calculation (Indirect Method):
- Net Income: $500K
- Plus: Depreciation & Amortization: $100K (non-cash expense, so we add it back)
- Less: Increase in AR: -$150K (revenue recorded but cash not yet collected)
- Plus: Increase in AP: +$50K (expenses recorded but cash not yet paid)
- Operating Cash Flow = $500K + $100K - $150K + $50K = $500K
Why This Formula Matters
The formula reveals the difference between accounting profit and cash reality:- You can be "profitable" (positive Net Income) but burning cash (negative OCF) if customers don't pay or working capital balloons
- You can be "unprofitable" (negative Net Income) but generating cash (positive OCF) if you have negative working capital (customers pay upfront, you pay vendors later)
Most B2B SaaS companies are profitable on paper but cash-negative due to high growth and working capital drag.
How to Measure It
Data Sources:
- Cash flow statement: Primary source (monthly or quarterly financial statements)
- Bank feeds: Real-time bank account balances can proxy for OCF trends between formal reporting periods
Measurement Frequency: Monthly
Recommended Tooling:
- Manual (< $10M ARR): Excel template pulling from QuickBooks, Xero, or accounting software
- BI Dashboard ($10M-$50M ARR): Metabase, Tableau, or Looker connected to ERP (NetSuite, Sage)
- Automated (> $50M ARR): Adaptive Planning, Anaplan, or NetSuite SuiteAnalytics with automated OCF rollups
Common Measurement Errors:
- Mixing accrual and cash accounting — Using P&L (accrual) instead of cash flow statement (cash basis)
- Not adjusting for one-time events — Including $2M customer prepayment artificially inflates OCF
- Ignoring working capital changes — Revenue grew 30%, so why did OCF drop? Working capital consumed it
How to Improve This KPI
Higher OCF = more cash generated, less dependence on external capital, stronger negotiating position.
Lever 1: Tighten Collections (Reduce DSO)
What to do: Reduce Days Sales Outstanding (DSO) from 60 to 45 days by:
- Automating invoice delivery (send same day as work delivered)
- Offering 2% discount for Net 10 payment
- Implementing collections escalation (Day 30: email, Day 45: call, Day 60: hold service)
Impact: Reducing DSO by 15 days releases $250K for a $5M ARR company (calculation: $5M ÷ 365 × 15 = $205K)
Example: A company reduced DSO from 65 to 40 days by automating Stripe invoicing and offering early payment discounts. OCF improved by $300K in Q1.
Lever 2: Delay Vendor Payments (Increase DPO)
What to do: Increase Days Payable Outstanding (DPO) from 30 to 45 days by:
- Negotiating Net 45 or Net 60 terms with vendors
- Batching payments (pay weekly instead of daily)
- Using credit cards with 30-day float for SaaS subscriptions
Impact: Increasing DPO by 15 days retains $100K for a company with $2M/month in operating expenses (calculation: $2M × 0.5 months retained)
Example: A company renegotiated AWS to Net 45 and consolidated SaaS vendors to achieve Net 60, extending DPO from 25 to 42 days and improving OCF by $150K.
Lever 3: Move Customers to Annual Upfront Payment
What to do: Shift customers from monthly to annual upfront payment by:
- Offering 10-15% discount for annual prepay
- Requiring annual contracts for enterprise deals
- Using billing software that defaults to annual (Stripe Billing, Chargebee)
Impact: Moving 50% of customers to annual upfront improves OCF by 6-12 months of billings
Example: A $10M ARR SaaS company moved 60% of customers to annual upfront, improving OCF from -$500K/month to +$1.2M/month in Q2.
Valuation Impact
This KPI rolls up into the Cash Flow Ops layer of the GFE ValuationOps stack.
How It Connects:
Operating Cash Flow improves → Free Cash Flow increases
→ DCF terminal value increases → Enterprise value increasesThe Chain:
- You tighten collections, delay vendor payments, or shift to annual billing
- Operating Cash Flow increases (more cash in, less cash out, or faster cash in)
- Free Cash Flow increases (OCF - Capex)
- DCF models discount Free Cash Flow to calculate enterprise value
- Higher cash flows + same discount rate = higher valuation
Risk Impact:
- Positive OCF → Lower cash runway risk → Lower perceived default risk → Lower WACC → Higher EV
- Negative OCF → Burn rate exceeds runway → Higher risk premium → Higher WACC → Lower EV
Magnitude:
Improving OCF from -$100K/month to +$50K/month extends cash runway from 10 months to indefinite, eliminating forced fundraising risk. This alone can increase valuation by 20-40% by removing distressed sale risk.
Tasks That Move This KPI
These GFE Skill System tasks directly influence Operating Cash Flow:
F-001: Build monthly cash flow forecast
Domain: Finance | Level: 2 (Designer) | Category: Planning
Prepare a 12-month operating cash flow forecast that ties to revenue, expense, and working capital assumptions, and reconcile it with the current cash position.
How it moves this KPI:
Building a forecast exposes OCF trends and working capital drains. By forecasting DSO and DPO, you can proactively manage cash timing (e.g., "DSO is trending to 60 days—tighten collections now before Q3").
Learn How
See the full guide: How to Build a Monthly Cash Flow Forecast That Ties to Valuation
S-003: Negotiate upfront payment terms
Domain: Sales | Level: 3 (Strategist) | Category: Deal Structuring
Design and implement incentives for customers to pay annually upfront, reducing DSO and improving immediate cash flow.
How it moves this KPI:
Annual upfront payment converts 12 months of receivables into immediate cash. A $120K annual contract billed upfront contributes $120K to OCF in Month 1 (vs. $10K/month over 12 months). This is the fastest non-dilutive funding lever.
Learn How
See the full guide: How to Negotiate Upfront Payment Terms (coming soon)
Processes That Measure This KPI
These processes use Operating Cash Flow as a primary success metric:
PROC-REV-LEAD-TO-CASH-01: Lead to Cash for B2B SaaS
End-to-end flow from lead capture to cash collection for mid-market SaaS.
Why this KPI matters here:
The Lead to Cash process spans Marketing (lead gen), Sales (deal closing), and Finance (cash collection). OCF is the ultimate output—it measures whether the entire process is net cash-positive or cash-negative. A broken collections process (high DSO) shows up as low OCF even if deals are closing.
Process Walkthrough
See the full workflow: Lead to Cash for B2B SaaS (coming soon)
OKRs Targeting This KPI
These quarterly objectives include Operating Cash Flow as a key result:
OKR-2025-Q1-01: Increase net new ARR while strengthening unit economics and cash safety
Owner: Head of Growth
Target: +10% OCF improvement in Q1 2025
This OKR balances growth (ARR) with cash discipline (OCF). The target is to increase OCF by 10% while growing ARR by 25%, proving that growth is sustainable without burning external capital.
OKR Breakdown
See the full objective: OKR-2025-Q1-01 (coming soon)
Traceability Chain
ValuationOps Layer: Cash Flow Ops (coming soon)
Related Tasks:
Related Processes:
- PROC-REV-LEAD-TO-CASH-01: Lead to Cash for B2B SaaS (coming soon)
Related OKRs:
FAQ
Q: What's a good benchmark for Operating Cash Flow?
A: For early-stage companies (< $10M ARR): OCF should be positive or break-even by Series A. For growth-stage ($10M-$50M ARR): Target OCF margin of 10-20% of revenue. For mature companies (> $50M ARR): Target 25%+ OCF margin. SaaS companies with annual upfront billing can achieve 40%+ OCF margins.
Q: How often should I measure this?
A: Monthly for companies < $50M ARR. Weekly for companies with < 6 months of runway. Real-time for distressed companies (< 3 months of cash). Measuring too infrequently means you discover cash emergencies too late.
Q: What if I can't access the cash flow statement?
A: Use bank account balances as a proxy. Track: Starting balance + inflows - outflows = ending balance. This isn't perfect (doesn't capture accrual adjustments) but shows cash reality. Update monthly from bank feeds.
Q: Is higher or lower better?
A: Higher is better. Positive OCF means you're self-sustaining. Negative OCF means you're burning external capital. For public companies, OCF is often more important than Net Income for valuation.
Q: How does this differ from Free Cash Flow (FCF)?
A: OCF = cash from operations. FCF = OCF - Capex. FCF is what's left for equity/debt holders after reinvestment. Use OCF to measure operational efficiency, FCF to measure true cash available for distribution or growth.
Q: Can I improve OCF without changing revenue?
A: Yes. The three levers (tighten collections, delay payments, shift to upfront billing) all improve OCF without changing top-line revenue. This is non-dilutive funding—you unlock cash already in the business.
Q: What's the fastest way to move this metric? A: Shift customers to annual upfront payment. A company with $5M ARR monthly billing can unlock $5M in cash immediately by converting to annual upfront. This is faster than tightening collections (takes 30-60 days) or delaying payments (takes 15-30 days).
Q: Who should own this KPI in a Series A company?
A: CFO or Head of Finance. At seed stage (< $2M ARR), the founder/CEO often tracks it. By Series A ($2M-$10M ARR), you need a dedicated finance leader who forecasts and manages OCF weekly.
Q: What if OCF is positive but we're running out of cash?
A: Check your cash flow statement's financing and investing sections. Positive OCF can be offset by negative financing (debt repayment) or negative investing (Capex, acquisitions). The bank balance = OCF + financing + investing.
This post is part of the GFE Skill System blog series. Learn more about the valuation-aware skill taxonomy at GrowthFlow.xyz.