Why Your Fashion Business Will Fail Without Finance

Fashion Business Finance

If you think you don’t need finance to grow your fashion business – STOP! Your creative ability may be the heart of your business, but your finances are the brains behind the operation.  Without a real understanding of where your money is being spent and how much money you are earning, it could only take one bad month to send you into a downward spiral.

We’re here to let you in on the very real dangers of not evaluating your finances.

 

First, note that finance is not algebra. All those scary formulas with letters that give you cringing memories from high school?  Unnecessary. Finance is using simple arithmetic to clearly define where your income and expenses are going and coming from, credit and debits in textbook terms. Without finance, you’re oblivious to what’s really going on within your business.

Second, if we could get away with never making a Microsoft Excel budget, expense, income, or forecast sheet again, we would. Very few of us actually like to sit on Excel and hack away at numbers that start to look like gibberish after 5 hours, but it is necessary.

Things like picking out fabrics, setting up photo shoots, and meeting with press – the sexy things – are much more fun, but to do those activities requires money. There is no money without finance. Paying your photographer with your credit card is not going to make you feel any better about your business when you realize you can’t even afford the fabric for next season’s collection.

It may sound extreme when we say only one month can send you into a financial black hole, but let’s elaborate. 

Say you need more expensive fabric than you anticipated. This means that you may be forced to take money out of your savings. You decide to go with the better quality fabric and end up marking up the price of your new collection.  Now, of course you’re going to charge more since you’re spending more and it’s costing you more. But what if your customers decide they don’t want to spend that much for your design this season and your profits decrease by 40%? You would end up with less income and more inventory.

Inventory is money – don’t ever forget that.  The key to inventory is that you have to sell it to convert it into cash.

This situation leaves you strapped for cash and you have to eat, commute, survive. This means that you can’t afford that top of the line photographer you wanted, which could either send you reaching for the credit card again or forgoing that photographer for a mediocre one, maybe even canceling the photo shoot all together. You’re in the fashion business, mediocre images won’t cut it, and absent photos of new products won’t cut it either. That puts you in a real sticky situation. See what we’re saying when we say one bad month could send you into a financial frenzy?

Applying financial analysis with tools like Microsoft Excel can help you avoid a situation laid out above.

Don’t be intimidated – Excel does half the math for you. Your real job is recording every cent you spend and every cent you need. This will allow you to logically see how much money you have and where you can/want to allocate it, no matter how small your numbers may be. It may seem like a daunting task, but once you complete it, you will have the peace of mind in knowing that you are better prepared to start growing your fashion business.

 

Image via Fashionista’s

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Francesca LaRaque

Francesca is a recent International Business MBA Graduate from St. Mary’s University College located in London. She is also a graduate from Seton Hall University in New Jersey, with a major in Finance and double minor in Economics and Fine Arts.

1 Comment
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    Seth Friedermann

    I applaud not only the information in this piece but the slightly scary tone. Build a business you can manage and then manage it like a ruthless machine.

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