CHAPTER 10. Finance
Budgeting For Your Business
YOUR NEW BUSINESS is going to need money, and it’s a good idea to try and establish how much you are going to need at the beginning. Clever financial planning is needed as there is a long gap between the time you start investing money in making your goods to when you receive payment from customers.
First you’ll need to list your expected start-up costs, and then your ongoing fixed costs.
Start-up costs
- Legal and accounting fees.
- Trademark registration fees.
- Rent deposit.
- Cost of setting up a studio/workplace with furniture, equipment, security.
- Marketing materials – business cards, brochures, lookbooks.
- Research costs – including travelling to see exhibitions/shows, etc.
- Website design and implementation.
- Making up of first sample collection.
Ongoing fixed costs
- Rent/business rates.
- Utilities.
- Staff, including your own salary (even if you don’t take a salary to begin with, you should factor it in).
- Production (based on projected sales).
- Marketing, including printed materials, and PR.
- Cost of any shows and/or exhibitions.
- Insurance.
- Cost of any loans.
- Contingency.
You should now have an idea of how much money you need to start, and then how much you are likely to need for the first few months before you start generating any income.
This information should form part of your business plan (see Chapter 2) in the form of your profit and loss projections and your cash flow forecast; these show how the business will grow in terms of both profits and income, and what financing you will need to make it happen.
If you are looking to borrow money, this information is critical, as potential lenders or investors will scrutinise these figures.
Profit, Loss, and Cash Flow Forecasts
Profit and loss projection (P&L)
This is a carefully thought out projection of how your sales will grow, and will also project the costs of delivering that growth, including staffing and any other costs you have identified and included in the operations section of your business plan. You then project profit, by taking your projected income and subtracting projected costs. This can be tricky to predict when you are first start and don’t have anything to go by – you will have to make some assumptions based on the size of your target market and your production capacity.
TIP: It can be helpful to produce two versions based on different sales projections – this will help you to establish your sales targets and your break even point.
The P&L doesn’t tell you how much money you will need to raise, as it doesn’t reflect the timing of cash inflows and outflows. This is where your cash flow comes in.
Cash flow
This is a monthly account of cash coming in and going out. It shows the peaks and troughs of your cash situation on a monthly basis, identifying what funding you will need during the periods of little income. The difference between these two figures is your funding requirement for that month – and you need to know this in advance, as opposed to finding out when you have run out of money and suppliers are asking for payment before they release your goods. In this business you incur many costs upfront (designing, sampling, marketing, production) before receiving any income.
There are many online templates you can use (your bank will have some useful online resources), but unless you are good with figures it is advisable to enlist some help. You may have contacts who can assist you, or business support/enterprise agencies can offer help in this area. Some support options are:
- Alumni student enterprise services.
- Enterprise/business support agencies.
- Freelance bookkeeper.
- Accountant.
Cash flow management
Good cash flow management is essential to any business’s success. Here are some handy tips:
- Keep your book keeping up to date.
- Update your cash flow forecast on a regular basis.
- Try and get as much credit as you can from suppliers.
- Ask for at least 30% deposit from customers and cash on delivery for the balance.
- Send out invoices promptly; if you have given credit, make sure you chase your customer if payment is late.
- Reduce expenditure as much as possible – only buy things if they are really necessary.
- Follow the guides on range planning and sample/production management to avoid wasting money on samples that are wrong and having money tied up in unwanted stock.
- If you do foresee any problems don’t bury your head in the sand – tackle them full on. Most debtors are reasonable providing you let them know what’s happening and show them you are taking steps to remedy the situation.
Invoice template
Sources of Finance
Bootstrapping
Using your own money to get going.
Family, friends and fools
People who will give or loan you money because they want to help you!
Crowdfunding
A relatively new way of raising finance that is growing quickly, based on online platforms that allow you to create campaigns and raise pledges from individuals in return for rewards. Try PleaseFund.Us (www.pleasefund.us) or Sponsume (www.sponsume.com). The original American platform Kickstarter (www.kickstarter.com) is also launching in the UK.
There are now equity-based crowdfunding platforms such as Crowdcube (www.crowdcube.com) and Seedrs (www.seedrs.com) that manage and pool pledges to reach your target funding requirements from potential investors in return for some equity in your business.
Grants
These are hard to come by. J4bgrants (www.j4bgrants.co.uk) is a searchable database of available grants from both the UK and Europe.
The Prince’s Trust (www.princes-trust.org.uk) offers grants and advice for people under 30 starting up their own business, and also runs PRIME – the Prince’s Initiative for Mature Enterprises – for those over 50 (www.prime.org.uk).
Fund101 (www.enterprisenation.com/fund101) is useful for raising small amounts up to £500.
The UK Fashion and Textile Association (www.ukft.org) offers grants towards the costs of showing at an overseas trade show or trade missions.
Loans
Banks can provide you with an overdraft, or unsecured and secured loans.
Funding Circle (www.fundingcircle.com) is an online marketplace that helps businesses find low cost loans quickly.
The Enterprise Loan for Young People (www.facebook.com/StartUpLoansUK) is a new government-backed scheme that will award personal loans, on average of £2,500, to individuals who are between 18 and 24, for the purpose of starting a business or going self-employed.
Enterprise Finance Guarantee (www.bis.gov.uk/efg) is a UK government guaranteed lending scheme intended to help smaller viable businesses obtain loans from lenders.
Sponsorship and competitions
Shell LiveWIRE (www.shell-livewire.org) runs a monthly competition to win £1000 and an annual Young Entrepreneur award worth £10,000.
The British Fashion Council (www.britishfashioncouncil.org.uk) facilitates various sponsorship opportunities and competitions, offering financial support towards the costs of showcases and catwalk shows. (See Chapter 9 for more details.)
There are other opportunities available once you are more established and have a track record.
Customers and suppliers
Once you have built a reliable reputation with suppliers you may start obtaining credit, which will ease your cash flow and allow you to grow your business.
Private investors
Private investors, often referred to as business angels, invest in businesses that need additional funding to expand in return for equity in the company. They are often represented through business angel networks that facilitate introductions between businesses and groups of potential investors. More information is available from the British Business Angels Association (www.bbaa.org.uk). Fashion Angel (www.fashion-angel.co.uk) also works with a network of investors interested in supporting fashion brands.
Invoice lenders
Banks and factoring agencies can help cash flow by buying invoices from you (for a fee) and providing up to 85% of the invoice value straightaway. Find out more from the Asset Based Finance Association (www.abfa.org.uk).
New variations of this method of finance worth investigating include MarketInvoice (www.marketinvoice.com).