Here’s some great advice from successful entrepreneur, Mike Southon.  Watch your cashflow, Ladies!!

The main reason for a company failure is their running out of cash, and every financial expert I have met bemoans the entrepreneurs’ reluctance to address the problem earlier in the process, as simple steps could have been taken to avoid later catastrophe.

This is a combination of the entrepreneurs’ over-confidence and their blind faith that something will turn up, like Mr Micawber in David Copperfield. Just as many successful entrepreneurs are dyslexics, many also have a similar blind spot with regard to money.

If you are a sole trader such as myself, you learn to negotiate up front payments and try and run a cash business. If you want to scale your business, an early hire should be someone who has an in-built understanding about cash and cash flow. They may be qualified bookkeepers or accountants, or simply someone who has no personal debt other than a modest mortgage and whose wallet contains debit, rather than credit cards.

These people are comfortable in recessions as they always have cash rather than debt. They can take advantage of cheaper goods, services and people from those who over-extended their financial position in the boom times.

A good finance person is literally worth their weight in gold, and will use spreadsheets and other instruments of torture for the average entrepreneur to make sure that the great idea also makes money over time.

Sometimes you meet an entrepreneur whose business is based entirely on cash flow rather than the specific goods or services that they supply. Rowan Gormley started Naked Wines after an impressive track record helping Richard Branson set up and build Virgin Money and later Virgin Wines, which was eventually sold to Laithwaites.

He started Naked Wines based on the simple premise that many people only had a general view of which wines they preferred and would be interested in buying from someone who understood their personal tastes.

Gormley knew he had to supply wines that were unavailable from anywhere else, so chose small wineries that could not afford expensive marketing campaigns. The price of the wine had to be very competitive, and, once trust had been built up with customers, they should be persuaded to pre-pay for their wines, based on an attractive discount.

Naked Wines demonstrates perfectly the ultimate goals of an internet-based business. Attracting people to a web site is relatively easy and the techniques well understood. Once the customer is there, you have to make them linger and convert their interest into sales; then you have to teach them to come back of their own accord, and spend more.

Naked Wines is therefore a cash-flow business with the wine itself an important, but secondary consideration. The small wineries can concentrate on production rather than promotion; the loyal, repeat customers can take advantage of great wine at an excellent price, and Gormley can concentrate on enjoying his spreadsheets and positive cash flow over a glass of Finca La Cruz Reserva 2001.

Naked Wines can be found at http://www.nakedwines.com