Music Business - Airline Business and Cashflow Problems

Recently I watched a documentary on the famous UK no-frills airline owned by Sir Freddie Laker and the ensuing problems that brought the business to a standstill. One might instinctively ask what this has to do with the music business but the problems faced by Skytrain are very similar to those faced by sections of the music business.

Many within the music business can always learn from other industries by seeking to understand the key challenges, business ethics, successes and other aspects that make an industry great.

Pinnacle one of the leading music business distributors went into bankruptcy making about 400 labels homeless. At the same time SPV, a leading distributor in Germany one of the major territories of the world also cried out to be rescued. As someone who has worked within an independent distribution company, the areas of problems will be very close to the cash flow issues as the key reason for their demise. Incidentally Skytrain also suffered from similar problems.

So what are the major problems to watch out for within a music business that were also similar to the way Skytrain went out of business?

Cash flow. Sir Freddie Laker's Skytrain ran into problems when it could no longer pay its bills due to various cashflow issues. This coupled with the fact that they type of borrowing incurred by the company of a kind that could be demanded within days. When this demand was placed the business was unable to meet its immediate debts.

In the same way, distributors are always subject to long credit periods taken (not given) by the independent stores who also struggle to keep up with the download industry. As a matter of fact the years 2002 onwards saw a great number of UK stores leaving the high street. This movement included companies like Tower Records. With the slow repayment of debt by the indie stores and the interest rate repayments by the distributors to the banks, many simply could not survive.

It is noted that cash is king. Whoever has the liquid cash will always be in a better position than the one who does not.

So how do we ensure that a music business is always in a cash rich position? Here are 3 things to do:

Ensure you are paid early- Most people in business want to hold on to your money for as long as possible and pay their bills as late as possible. It is in the interest of the music business to offer as many incentives to get people to pay quickly. Discounts for early payments and penalties for late payment will always produce good results.
Get longer credit periods- In business, efforts must be made to secure repayment terms that are more filling to the operations of the business and of the industry in which it operates. Where people do not pay their bills late it is important that they also have a longer payment time otherwise they could simply be paying interest on behalf of those who owe money.
Get cheaper debt- The cheapest debts have to be family money followed by equity financing and then bank/lending institutional financing. The cheaper the debt the greater the impact on cashflow. More expensive debt means higher payouts and less money in the business.

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