Dec 01 How To Start A Fashion Business Part 2 – Startup Capital
Before you start executing your beautifully crafted business plan that took you months to research and map out, you have to think about how you will handle growth when every dollar you make is being put back into the business as it needs more to grow to the next level.
Initial Startup Level
Getting a fashion business off the ground in the beginning (building a website, logo design, setting up a workstation, hiring staff, production, initial open to buy, marketing budget, photo shoots, hiring models, etc..) will require an initial investment. Here are a few financing tips for the first few years of operation that could help you get your fashion business off the ground:
- Crowdfunding. There are tons of websites out there now that were not around a few decades ago- which is helping a lot of entrepreneurs find the funding they need to startup and/or invest in growth. If you have a great concept that you are passionate about and have the capability to make a great pitch video, this might be an ideal option for you.
- Personal savings. This is the way a great number of tried-and-true business have had their beginnings. The typical “I started this out of my garage with $10” story is not a myth. Often- hard work, determination, and a day job- could be your best way to success. Sleep will be sacrificed in the beginning, but this boot-strap method leads to a strong foundation built on a positive work ethic and should not be overlooked. Yes, there is a chance you might lose it, but losing money will be a very important lesson any entrepreneur needs to become ok with and eventually learn how to overcome. If you have a strong financial plan and limit your spending to expenditures that only add value to your business- in the long run, it will all be worth it.
- Credit cards.Having good credit is an essential part of being a successful entrepreneur. First, it shows you have the ability to be financially responsible. Secondly, it allows you to get a business credit card. If you have solid personal credit, you can begin building your business credit. A very important step. If, in the future, you are seeking investment, having a good credit score could make or break the decision. You have to show that you are capable of managing money and money owed. A business credit card is also necessary so that you have some backup funds for emergencies. In the beginning of a fashion business, sometimes you have finances that pop up unexpectedly. Fashion is an extremely volatile industry- going in financially prepared is greatly advised.
- Family investment. Family members who believe in you and are positive about your ability to succeed could be a great start. If you would like to be taken seriously, it’s very simple, take the loan seriously as you would if approaching bank. Present your family member with your business plan and offer to pay interest on the money owed and have a repayment plan in place. This is a sure way to show them you are serious and worthy of their support. This is a great option, because with this type of investment you do not have to relinquish any control, give out any equity, or put your personal credit at risk.
- Angel investors. Angel investing otherwise known as seed funding, or seed capital, is common in the early stages of a business. An angel investor is someone who injects capital into a start-up in exchange of a percentage of the stake in the company in order to help the company start-up or grow. This is a relationship-based investment and usually comes from friends, family, or a professional network of investors you can pitch the idea to. There are also websites now that connect entrepreneurs to angel investors looking for new opportunities. This is a high-risk investment which is why the investment amounts are low and usually under 100k.
- Business loans and lines of credit. For those that have good credit, a good relationship with their bank, and are willing to put their personal credit on the line, taking out a business loan or opening a business line of credit could be another way to have access to some seed money. In the very beginning, if this option is realistic for you, it could be a good idea for those who want to maintain full control of their business. The amount might not be very high, but $15-20k could go a long way in the beginning- if spent wisely.
Handling a Burst of Growth
In the first few years, it is possible to experience growth you were not prepared for. With a great business strategy, fashion marketing plan, and hustle- your brand just might become the next big thing. So now what? You have high demand….but do you have the ability to produce? If you find yourself in the position where it is time to scale up but you do not have the capital necessary, a big investment may sound desirable. However, there are some things to think about before you take that first big investment in the early years of your business.
Risks & Benefits of Venture Capital Investment in the Startup Years
If a business is in the position where it needs to scale up and is looking for typically anything over $250,000 to do so, it may be ready for their first round of venture capital (VC) investment. This exchange will happen in the form of a decided amount of equity of your business. However, as great as it sounds from the outside to raise millions of dollars of capital from VCs, there are some risks small business owners must be aware of before they decide if this is the right track for them. First of all, you must show a strong track record of success, a solid monetization plan and the ability to generate positive cash flow for your business to even catch the eye of a VC investor. If you are not operating a solid business and you don’t have a sound strategic business plan in place, this could be a risky move in the beginning because once investors own a percentage of your business you will be under pressure to prove the ability to execute your ideas and implement a firm organizational structure. This route is one not to be taken lightly- which is why some of the biggest fashion companies we know of today, such as Revolve, have decided to grow the slow and steady way.
Whichever route you go, be sure you have a firm plan in place for funding now, as well as for future growth.