No cash, go bust!

We were discussing the interesting case of Music Zone in our Venture Capital and Private Equity class, then I read this blog post from Seth Godin and found it very appropriate.

Basically, in a business it is important to generate cash, the business model has to deal with this issue or the company will go bust, even if it is profitable. Working capital requirements in businesses with seasonal demand is one of the reasons why you might run out of cash at certain times in the year even if the accounts show profit at the end.

We discussed that one way to address this issue is to model the cash flow and then negotiate payment terms with suppliers and customers to make the cash flow curve as flat as possible throughout the year. If you figure out how to overcome this problem with your business plan, you might even be able to run your business with no bank debt, just like Steve Olive did with Music Magpie.