Over the years, launching a fashion business has become more challenging and more expensive. Marketing, manufacturing, materials, showroom costs and shipping rates are just some of the expenses you have to look forward to when starting a fashion business. The harsh reality is that even with nontraditional funding methods like Kickstarter, majority of new fashion businesses still fail because of poor funding and inadequate planning. There are a host of things to consider when launching a fashion brand or business and what you have to realize is that, like any other business, it will be expensive. As a result, it is imperative that you establish your financial goals in advance and consider the points below.
The real costs in fashion
As the founder of your own business, your financing will most likely come directly from your savings or personal assets. This means that before you even think about the fashion business, you have to be aware of the amount of money you have and can spend. This means, evaluating your personal savings, debts and other potential avenues for more money or strategies to save money. Drawing up a financial plan is the first step you take before you can start you business. In creating the plan, you can appropriately budget and tally up the amount you have versus what you will need to start-up. This includes budgeting per item of what is needed such as machinery, utilities, location/rent and accessories like zippers and buttons. See below budgeting and expenses.
Budgeting and tracking expenses
A business budget is an important step in determining how much money you will need to start and maintain your business. As an aspiring businessman or woman, to create a business budget you need to figure out your business’s initial and running costs. Initial costs are incurred during the setting up of a business. Thus, for a fashion business, these can include, registering your business as a legal entity, getting machinery and other equipments, vehicle purchase, creating a website and business cards. Running costs on the other hand, are day-to-day costs that are associated with operating your business. Running costs include, monthly, quarterly or annually rent payment if you a renting a space, water, electricity, internet, equipment maintenance, promotion/advertising expense, and staff salary payments.
Do not be afraid to make big goals when it comes to finances, for example if you want to buy a studio or set up your own store(s), there is nothing wrong with writing that down. In the end, as long as you are aware of the gradual steps you need to take to make these goals a reality, there is no harm in having future aspirations. It won’t always go as planned but as long as you stick to your financial plan and strive to keep up with your budget; you are a step closer to creating a successful fashion business.
Avenues of Funding
There are various avenues of funding you can explore in setting up your fashion business. Sometimes personal savings are not sufficient especially when you are not receiving additional financing outside of your own business. In actuality, your primary and easiest source of financial support will come from your close family and friends. So, do not be afraid to approach them with your business idea and offer them a chance to invest. However, be careful with family, you do not want to create enemies by taking them for granted. With your business and financial plan already drawn up, convincing them will be easier. When starting a new business, the amount of money needed to keep the business running, called working capital, will help determine what your source of funding will be. Luckily, there are several other avenues besides your family and your personal assets, here are some:
- Venture Capital; this is a funding source in which investment banks, wealthy investors or other financial organizations invest in your business or idea in exchange for a percentage of ownership of the company (equity).
- Angel investors; these are usually wealthy individuals who provide funding for startups. Angels not only contribute their experience and networks of contacts but their management knowledge.. In turn they are usually involved in the company’s management practices, sometimes having a seat on the board of directors.
- Crowdfunding websites; an emerging method of funding startups, crowd funding occurs when a large number of people donate money usually via the internet, in an attempt to take a business idea to the next level. Besides Kickstarter, other crowd funding sites include Rock the Post, Indiegogo and AngelList, which can also connect you with angel investors.
- Business Incubators; incubators provide support for new businesses in various stages of growth, although they normally focus on the high-tech sector. They invite startups to share their space and resources among others, the incubation phase last for 2 years then the business leaves the incubators premises to enter its industrial production phase. In Kenya, there a few incubators including iHub and Gearbox.
- Grants and subsidies; a grant or subsidy is typically a payment made to an individual, government or organization to fund a business activity or startup. With grants, you don’t have to repay the money, but you are legally required to use the grant under stipulated terms. There are several funds avenues available in Kenya to local businesses including, UWEZO Fund, Youth Enterprise Development Fund, and Women Enterprise Fund.
Plan for Future Costs and Cash Flow
It is important to realize that a financial budget will still be relevant even when your fashion business is up and running. After creating your budget, indentifying your sources of funding, the challenge now is to keep your finances on track. In order to keep your expenses in check, have a budget for the foreseeable future, whether that is a yearly or monthly plan. In doing this, you can better identify which months your finances may be tight and which ones you’ll have extra money.
How this is done is through a cash flow. Just because you are selling does not mean you are making money. Your books need to tally. Are you spending more money than receiving? Perhaps the materials you are choosing are too expensive and would require ten times more sales than you are making presently to break even. This also goes into pricing your products and knowing your consumer who will buy your product regularly.
Cash flow is one of the most important tools in managing your finances. A cash flow projection helps you manage your business costs as well as predict how much money is expected to flow in and out of your business. It’s an important feature in your business plan because it lets you know when your expenditures are too high or how much capital investment your business idea needs. Cash flow forecasting shows you how much cash you anticipate to be generated by your business over a chosen period of time in the future.
However, a cash flow projection is not just good for you in setting up your business, it is also essential if you want to apply for a loan. For a bank loans officer, cash flow forecasting indicates that your business will generate money and therefore will be able to pay it back. Cash flow reports are important for business decision-making and can save you a lot of grief when it comes to your finances. If you have no idea how to construct a cash flow statement or projection, you can click here.
Ultimately, mistakes will be made, you will go over your budget sometimes, overspent and even run short of money, but with a proper plan, you can always bounce back. Although it can be quite expensive running a fashion business, once it is well-established and blooming, the pay-off is incredible and perhaps soon enough you can hire someone to worry about the finance so you can focus more on what you love, designing.
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