Overcoming these sector-specific hurdles will be paramount to your eventual success, but what are the most common financial problems that crop up in the fashion industry and how can we go about solving them?
At Capitalise, we often find that the need to finance within the fashion industry falls into one of five categories – seasonal revenue, property purchasing, customer growth, supplier rates and asset upgrades.
Read on to learn more about these issues and steps that you can take to avoid these common pitfalls.
WHAT OPTIONS ARE AVAILABLE FOR OVERCOMING SEASONAL REVENUE FLUCTUATIONS?
As with tourism, many businesses within the fashion sector find themselves constantly trying to innovate in order to bypass dips in seasonal revenue. Whilst this is a great way to evolve your business into multiple sectors, it can quickly put pressure on your cash flow, particularly when other areas such as marketing, workforce and production need investment too.
The knee jerk reaction is usually to go down one of two paths – either source a standard bank loan in order to facilitate growth across all of these areas, or significantly slow down your projected growth during these seasonal dips.
Neither option is ideal. Standard bank loans come with fixed monthly repayments which can be difficult for SMEs to meet when revenue streams dip, whilst the latter leaves you unable to take advantage of momentum gathered during busier trading periods.
A merchant cash advance presents itself as a viable alternative when it comes to tackling these issues and is available to any business which takes debit and credit card payments through a card reader.
A lump sum of capital is lent to the borrower but, rather than being tied to a fixed term or set repayments, the loan is paid back in part each time you take a card payment through your reader. The biggest advantage is that you'll pay back more during peak trading periods and less during the quieter months, giving you the peace of mind of knowing that repayments will always fall in line with your revenue.
HOW CAN I BUY A COMMERCIAL PROPERTY FOR MY FASION BUSINESS?
From fashion retailers and high street outlets to textile manufacturers and distribution warehouses, commercial property is a useful, but expensive, asset to have on the books. The large outlay required to secure such properties can make this dream unachievable or, at the very least, a long term ambition rather than a tangible, short to mid term strategy.
As with a residential ownership, one of the biggest motivators behind wanting to purchase a commercial property is that monthly repayments can often be significantly lower than monthly rental, whilst you'll also be adding a valuable asset to your business.
It won't be immediately suitable for every fashion business as you'll need to ensure that you qualify based on the personal and financial eligibility requirements, but it's certainly worth considering.
HOW CAN I EMPLOY MORE STAFF WITHOUT SACRIFICING CASH FLOW
It's the age old cache-22. Businesses need to invest in staff in order to grow revenue, but increased revenues or cash reserves are needed to facilitate the hiring of new staff.
Whether you need to take on more staff for your growing retail outlet or simply need additional hands to help deliver a large customer order, working capital finance can be used to quickly inject capital into your workforce.
The biggest plus regarding these loan types is their flexibility. You'll have free reign to invest the capital in any area of your fashion business with fixed or variable repayments structured around your revenue projections and existing affordability.
HOW CAN I ATTRACT BETTER RATES FROM MY SUPPLIERS?
Negotiating favourable rates from suppliers can be a make or break scenario for many fledgling businesses. It's understandable that suppliers will see newer fashion businesses as an added risk when it comes to setting credit limits and repayment terms, however it can be frustrating for these business owners who need competitive rates to get things moving forward.
If you don't have the capital available to cover new supplier orders upfront or simply don't yet have a provable history of settling supplier credit in a timely manner, then you may get penalised with harsher terms as a result.
One way that new and growing fashion businesses have found to tackle this issue is by securing trade finance. Trade finance providers fund suppliers on your behalf with capital secured against received purchase orders and/or the finished goods themselves.
The major advantage of going down this route is that, with orders paid for in full on your behalf, you'll be treated in the same manner as a cash buyer, picking up far more competitive rates in the process. Importing from abroad? Most trade finance specialists operate in multiple currencies and can even manage much of the importation process on your behalf, leaving you to focus on other areas of your growing fashion empire
WHAT ARE THE BEST WAYS TO UPGRADE MACHINERY WITHOUT AFFECTING CASH FLOW?
This is one of the most common enquiries that we receive from fashion manufacturers and not without good reason. The constantly evolving state of production and print technology brings with it a host of advantages including cheaper overall production costs, lower energy consumptions and longer technological life spans to name but a few.
The downside to purchasing these highly beneficial technologies is the large upfront costs which can leave fashion business owners with outdated machinery that sees them falling behind the competition.
Asset finance has long been used within other industries to secure key assets without the need for significant outlays. Machinery, tools and equipment are purchased on your behalf by a finance partner and then leased or sold back to you with payments staggered over an affordable number of months or years.
WHY CAPITALISE IS DIFFERENT
What sets Capitalise apart is the fact that we'll only match your business with lenders who have a proven track record in providing finance to the fashion industry. By vetting companies in this way, we can ensure that you'll always be dealing with professionals who have an intrinsic understanding of your business model, investment needs and revenue streams.
Create your Capitalise profile today in as little as 3 minutes and discover lenders who can support your growing business.