Lowering Costs For Start-Up Fashion Brands

Written by Rachel Blaydes

Starting your own business is a costly endeavor that involves a lot of planning and preparation. Fashion Index has your back, and we are here to walk you through some options to try to keep costs down. When prioritizing expenses, keep your company's goals in mind. Where the money gets spent should align with your objectives and capture your target market.

Creating a Company Identity For Your Small Business

Before you create your business plan, you should determine your company's “why.” Doing your research and potentially working with an industry professional to help define your mission statement and approach will save you time and money. What hole in the market are planning to fill?

Research other companies who are in a similar market space and see where they excel or fall short of customer expectations or needs. Keep this in mind as you build your business plan and present your ideas, and find ways to relate the issue you want to fix to others. The fashion industry still has a lot of room for innovation, and practically everybody wears clothing!

Once you validate your “why” and what you plan to make, think about who you envision wearing your garments. Get as specific as possible, and do research on your target market. Really get to know your target market and their demographics. Analyze the typical buying habits of your intended customer, and try to put yourself in their shoes. What will they want to buy from you?

After identifying your niche, reassess your company's ethos and how it aligns with your ideal target market. It is important to maintain your brand's integrity in all decisions to build trust with your customers. For example, if your brand pledges to make eco-friendly manufacturing decisions, source sustainable materials and business partners.

Funding Options For Your Startup

There are multiple ways that you can fund your business venture. You can raise capital with personal funds, friends and family, crowdfunding, small business loans, or equity financing.

Using personal funds is the most common way to initially finance a small business. This money can come from your savings, but be careful about trying to finance too much yourself. New businesses are inherently risky, so we do not recommend borrowing against personal assets like your home. Family members and friends are another resource. They will likely need the least amount of convincing to contribute to your business. These people may invest in your business by loaning you money or by becoming partial owners.

Another approach is to start a crowdfunding campaign. There are many platforms to choose from. Fundraising this way allows you to source money from a wider audience. Going this route means that you won't have any loans to pay back, and you could potentially gather more capital than a bank would loan. However, there is no guarantee you will raise any money on these platforms.

Small business loans are a good, reliable way to gain capital, but may be harder to secure and come with a higher interest rate. These loans typically do not show up on your personal credit report. Depending on the lender and type of financing, there is a wide range of money your business can receive (up to $5 million!). Going this route will require some time spent researching the best option for you.

Some lenders will only approve loans for companies that have already been in business for 2+ years. Having someone co-sign the loan can increase your likelihood of getting approved. Practice your pitch on friends and family first to help build your confidence and refine your presentation.

Equity financing is a way of allowing investors to fund your business by selling company shares to raise your capital. People who are willing to invest in your company will gain partial ownership rights to your company. This is a good path to explore if your business does not qualify for a bank loan, but you will be giving up a percentage of your company. So, if you want to retain full ownership rights to your business, this is not the right choice for you.

Securing Your Brand Name: Traditional and Social Marketing

When deciding what your brand's name will be, search the name you want to use as a website and on social media sites to see what is available and reserve usernames. Try to keep your handle uniform across all platforms so your followers can easily find you! Create an account on all social media platforms. You may expand your social media reach to include more platforms than you use initially, and it will reserve the username for your future use.

Pro Tip: It takes time to build a customer base, so it's important to start generating buzz about your company before you launch.

Start sending out email newsletters that update potential customers on how close you are to being open for business. Use it as an opportunity to collect feedback and hear what people think and grow your contact list.

Optimizing Cash Flow Management

The most important step to managing your businesses' cash flow is to set up a budget. You will learn a lot along the way from hands-on experience, so don't be afraid to regularly reassess your budget! This will help ensure that you know where your money is going and if you need to reallocate your funds or eliminate expenses.

Creating a savings account for your business is an important step when managing company finances to save a percentage of your profits for your future goals. Make sure that this is separate from your business's checking account. Assess your options, look for accounts without a required monthly/annual fee, like through credit unions. Look for business credit cards with a low percentage interest rate and that allow you to collect cash back points. 

Once you have selected a supplier, partner with them to review costs. Make sure you understand what they have to offer, and identify any areas of leverage you can use to ask for a better price, such as payment method and terms. An effective way to get on your supplier's good side is to pay off your invoices early. They get their money sooner, and you will be able to avoid late charges.  

Make sure that you keep track of all receipts for business expenses. Going paperless will save you money on office supplies, and is a greener option! If you keep everything paperless, you can store your digital receipts in the cloud or a folder on your computer. Scanning physical receipts will help keep organized.  

Pro Tip: Having your expenses all in one place will help during tax season.

Pro Tip: Use an expense tracking application or consult an accountant if you've never filed business/corporate taxes; the cost will be well worth it.

Leveraging existing ecommerce marketplaces can save you the upfront cost of building your own website. There are many ecommerce marketplaces that are easily accessible for sellers who don't have their own website set up or who want to extend their outreach. These platforms have an established customer base and credibility, which will help you to build yours.  

Budget Reassessment: Maximizing Efficiency and Reducing Costs

When reassessing your budget, review your fixed and variable costs to determine the areas that have room for improvement. Fixed costs do not increase when your sales volume changes and include insurance, rent, and fixed utilities. Variable costs are subject to change as your brand grows and include material costs, production and manufacturing, and any additional utility expenses that occur as a result of additional shifts. The variable costs will be the place to start looking to cut expenses, such as finding a local manufacturer to lower transportation costs, utilizing automation to reduce labor costs, or using enterprise resource planning (ERP) software.

As part of the overall review, go through your overhead costs and look for unnecessary expenses. Overhead costs are operating business expenses that are not directly related to producing anything. Most overhead costs are fixed, but have variability to them, such as utility costs and human resources. Review your subscriptions and services, including software, to assess their importance and continued efficacy for your company.  

There are several free and open source fashion design software available for designers to use. Explore the options available, and make note of the features that you like when you are able to afford a subscription based software. You can hire a consulting firm such as Apparelmark or Fashion Angel Warrior to optimize the process of bringing your ideas to life and avoiding common pitfalls. Partnering with industry experts makes success more attainable by letting the professionals handle some of the heavy lifting for you. For more information, read 11 Common Mistakes in Starting a Fashion Business.

If your business has a physical location, be wary of utility costs. Install light timers and open windows to get a good air flow. Make use of remote work and outsourcing when possible. Review your space utilization and potentially sublease a portion of your space.  

When furnishing a physical location, look for second hand office supplies. Doing this can save you money, and you might find some pieces that have a lot of personality! You can look at local thrift stores, and keep an eye out for businesses that are closing and getting rid of their gently used hardware. There are “buy nothing” groups, which are virtual communities where people offer used items at no cost.  

Putting some of these ideas into action will help your business grow on a budget. Don't let bumps in the road discourage you; this is your journey. Remember, keeping a tight budget is particularly important as a small business, and will set you up for success.