Our first article in this series looked at the apps you need to run a successful fashion business. In this second post, we’re delving into funding and the cash flow challenges you’ll face as a fashion business.
As a fledgling designer, getting your fashion business off the ground can be a challenge. But there are plenty of funding options out there, as opposed to going to your traditional bank. In this post, we’ll walk you through the different ways of getting funding in place, and how to successfully manage your cash flow as you grow.
For a new designer, funding can be a bit of a hurdle from the get-go. Graduating fashion students will typically spend £3,000 – £5,000 on their Degree Show Collection, which is substantially more than most design students. And for many fashion brands, the first garment will be a single product. Our clients Meander Apparel did this with their first Meander Jacket, which they launched on Indiegogo, the crowdfunding platform back in 2017.
Indiegogo and Kickstarter are both great ways to fund that first product. Supporters pay you up front to receive a discounted garment once the product eventually ships. You get the money in advance, giving you the funding required for production. You’re unlikely to make a significant profit on the first product, but it gets your brand out there, gets some sales and gives you some visibility.
Perhaps you’ll launch a full season’s collection, or a range of staple garments that aren’t season dependent. For a range like this, you could be looking at anything from £50,000 to £100,000 – a significant investment that needs to be paid up front before you even sell a single product. So how do you go about funding that?
Friends and Family
For the majority, the answer is friends and family, or the bank of mum and dad! There may be loans and grants available, depending on where you’re based in the UK. However, if it’s your first collection, those may be few and far between. Crowdfunding may be another option at this stage, however you might not want to share your designs to the world before launch.
The SEIS Investment Scheme
At this stage, the Seed Enterprise Investment Scheme (SEIS) might also be an option. It means giving away some ownership in your business, but investors get significant tax breaks for supporting a fledgling business. Investors–including directors–can receive initial tax relief of 50% on investments up to £100,000. It’s a route that several brands go down with great success. Your friends and family (with some conditions) can benefit from this too.
The individual investor can be a director of the company, but not an employee, as long as their stake in the company is no more than 30%. The SEIS tax relief is only claimable for recently incorporated companies with 25 employees or less, so it’s a great way to get things off the ground at the start-up stage.
Before you delve into anything though, our advice would be to get yourself a good advisor. Someone who understands the industry and can help shape your business plan and forecast your funding needs.
Managing your cash flow
Fashion is a seasonal industry, and the cash flow needs can be quite extreme. There aren’t many industries where you need to design and manufacture six months’ worth of stock several months in advance. February sees thousands of buyers descending on Paris for Premier Vision, sourcing materials, choosing print designs and finding manufacturers. Many of those things need to be paid several months in advance of actually receiving the finished collection.
So how do you cope with that?
Firstly, make sure you’ve worked out the costs. You’ll need to know what your budget is for the collection, then make sure you stick to it. Next, get the funding in place, whether that’s through friends and family, crowdfunding or the SEIS.
Then map it all out. When do you have to make payments? What are the different milestones? When are you likely to start receiving money? Any Grants or Loans? Think about what terms you’ll offer buyers.
You can use free software like Google Sheets to manage this, or you can get sophisticated with a product like Float. Float is short-term cash flow forecasting software that provides highly detailed daily, weekly and monthly forecasts. As the business grows, we’d definitely recommend using Float. It connects to Xero and gives you the ability to forecast cash flow at a very granular level.
For a more in-depth guide, check out our top tips for managing your cash flow.
Need more advice on financing your fashion business? We’re here to help! We can run you through some fundraising options in more detail and help you implement the right tools to take control of your cash flow.