CASH & FUNDING: The 4 Essential Points A Financier Checks In A Fashion Business Plan

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Hello guys,
You are live with fashion cross functional. Today is going to be about the 4 questions a financier asks himself when evaluating a fashion business plan.
As you probably know, I used to work in audit and finance. And one of my missions was to evaluate company loan applications and to decide whether I should grant the loan. I had some fashion companis applying for a loan. However fashion companies were almost systematically rejected because the financial estimates were not solid enough plus the activity is seen as very random and risky by financiers. And it was obvious while reading the financial estimates that the brand was struggling as a business and you cannot let that show.

The one thing I observed is that you focus a lot on the creative and production part. Of course it is very important to monitor that part properly. But being a business owner is different. You need to understand that you are supposed to conduct a business. A business means that you have to build a system that enables to generate sales and profits that can last in time. Whereas other people might have chosen more rational activities such as selling softwares or books, you chose to do that in fashion.
Some of you may probably have a business partner who takes care of all things business and operations while you figure out the creative part. But from what I observed, lots of you are launching on your own.
If you are alone in your business, you have to figure out the creative part as well as the business part on your own.
So in order to properly plan where you money will go once you launch, it is good to get a business plan drafted. Just as a reminder, a business plan is a document that helps you explain a project, the strategy that you will apply to make a business out of your concept, with the related financial projections. You need such a document before you start your own fashion brand, so that you are aware of what you need to do to keep your company afloat and where you put your money. And if you plan to ask for funding or if you plan to work with other business partners, it’s good to have a business plan to show that you know what you are doing. As I said in another live video, it shows that you know the conditions in which you are launching, you know your market and it indicates that you have a plan to get your collection sold. It’s a sort of a courtesy you do to someone who will lend or give you money. It’s the least you can do. It doesn’t mean that it’s over if you don’t do exactly what’s written in the business plan. Reality often happens to be different from the business plan. But it’s the least you can do, the first step to reach out to an investor or a banker. Consider it like a resume when you apply for a job.
There are 4 major points a financier controls when reviewing a fashion business plan.

#1 – Show that you can generate sales

In your financial estimates, you will have to deliver a profit and loss account. This document shows how your business model generates profits. And it starts with the sales line.
One of the mistakes I see you do is to think that finance is just about putting figures in charts. It’s more than that.

Finance is no magic.
crystal ball love GIF by HERSHEY’S Cookies ’n’ Creme
I had a designer once send me a file that she called business plan. It was a video of a photoshoot and as a caption in it, you could read “we will make $23 million sales”. You don’t just add figures like that. You don’t just say you will make $23 million sales without explaining exactly what you will do.
So before you announce the amount of sales you will make selling your brand, you want to make sure to explain how you will do that. So the one thing a financier likes seeing is market data. You need to have your target customer defined and you need to have understood that ideal customer’s lifestyle. You have to do some research to understand how that customer lives, how much he or she buys in average, where they shop, what kind of magazines they read etc. But all this shows that you’ve done your work and you know who you are selling to.
The other analysis you need to do is your competition. You need to position your brand compared to other similar fashion brands your target customer already buys: what makes you different. Then you price your product accordingly. If you decided to price your product higher than your direct competitors, it is good to have a value added on top of your competitor’s offer. For example, you can say you sell very limited editions, they are rare. So rarity would be the value added that you can offer on top to “explain” the value added.

The fashion business plan - Break even analysis
Once you’ve done that, you need to define your sales distribution system. So based on the market data you collected, in which area should your brand be present? Which popup store or mutlibrand do they visit? You need to be where your ideal customer hangs out. Is there a particular Facebook group he or she hangs out in? Or maybe he’s or she’s on Instagram? So you need to figure out a system to reach out to that ideal customer. This is also the reason why you need to be present on social media, reaching out to your audience at least 3 months before the launch. And once you target the social media, you can get a feeling of what they want and have them book your product in advance.
Once you figured out what your sales distribution will be, you can evaluate your sales. And again, it has to be correlated with what you’ve developed before in the sales distribution strategy.
Another piece of advice I can give you is to look at the final figure you got in the end. Let’s say you plan to make €250,000 in a year. You have to bring it down to a more tangible data. What does €250,000 a year mean in number of days? So if you decide for example to work 250 days during the year, it means that you need to make at least €1,000 per day to reach your yearly goal. So you keep that in mind every time you go to work and when you step foot into the office, you know that today, you need to generate at least €1,000 sales. Thinking like this helps a lot understanding the kind of effort you need to provide to reach financial goals.
This is for example a feedback we can work on together in the fashion business plan training that starts soon. I review your work and you get individual sessions with me to go through your very own business plan.

#2 – Build a system that enables to make profits

The second thing you need to show is that the system you implemented is able to generate profits.
make it rain money GIF

What does it mean?
It means that all the strategy you implemented enables to sell enough of your fashion products to cover all the costs involved.
So as for the sales, you need to list up all what you need to generate those sales. So to start with, there are your production costs. You need to understand how much per unit, you are spending in your production costs: fabric, trimmings, production costs and delivery costs. You need to know which % it is in comparison to your retail sales price. This will give you the gross margin.
Once you get that, you need to list up all you need to keep your business going. So for example, maybe you will need to rent a boutique, there will be electricity charges. Maybe you will hire an admin temp so you will need to evaluate the salary and the related social charges. Then you will maybe work with a communication agency to take care of social media and reach people who can influence your target audience. You need to expense all that. You will need to organize sales events, rent a nice location, buy some food/drinks and hire a PR specialist to invite adequate guests so this is another expense you need to account for. You will have insurance costs to take into account.
So list up all what you need to do and evaluate the expense.
When you are done with that, you see how much profit you have left in the end.

The fashion business plan - Break even analysis
At the beginning you often end up with a loss at the end. So you need to play: either you figure out a way to change your business model. So maybe you will find a way to sell more volume. Or you will try to cut the costs. For example, maybe you finally decide that you won’t be needing an agency to do your social media anymore. But it also means that you need to understand, in your head, that you will be spending time doing social media/newsletters every single day and that is less time that you spend designing and negotiating with clients. Or maybe you will need to work with a cheaper workshop but it means that it will involve more supervision time from you. Or if you find a cheaper fabric maybe you will not be able to price your product at the same level.
So really understand what your concrete actions generate in your business. Or if you decide to sell more quantities for example but you said it was limited edition, which justified for example that you price it higher. If you sell more quantities, will you be able to keep the price point you chose?

#3 – Show that you will never be short in cash

One thing that you will need to deliver in the business plan is a cash flow analysis. The cash flow analysis shows how money flows in your business.
This is one of the main reasons why a fashion company goes bankrupt: cash problems.

poor no money GIF by Tubelight
This can be quite problematic in fashion because advance a lot of cash in advance before being paid by your customer. You will probably need to advance cash to pay for fabric, production. Since you begin, I guess you need to build the trust with the suppliers so they will ask you to pay earlier than a more established brand. This is cash you need to advance. And even if you sell, you invoice your customer, if you work with somebody else’s store with a multibrand, you will not be paid immediately. Maybe even your product will be on consignment so you will need to advance cash to pay for the products you’ll send there and they will pay you when it sells.
So in the cash flow analysis you need to present how you will deal with that.
For sure you will need some security cash at the beginning. In finance we recommend to have at least 3 months of fix costs as a security when you start a business. It enables to show that you are able to face the situation where you have absolutely no sales for 3 months.
So you need to show each month, how much you will receive and how much you will expense. And at the end of each month, I recommend you to show you are positive.
Otherwise it means that you are in the red and it’s not a good sign for your business.

In terms of cash management, we also check that you do not have too much loan. Depending also on how strict is the bank but in a healthy business, we consider that loan should not represent more than 50% which is a maximum. In order to lower that rate, you need to bring at least as much capital as you your loan. So for example if you ask for 20kEUR, it is good if you can also bring 20kEUR as capital in your company.
So again, in the fashion business plan training, this is something we go through. In the bundle you receive during the training, you will be able to build your cash flow analysis. So you can fill it out and you get individual sessions with me to go through all what you’ve done, what can be optimized.

#4 – Business continuity: build a system that can last

The last point we ensure when we analyze a fashion business plan is business continuity. We try to understand if the business is solid and well built to continue. So for that, we essentially ensure there is enough equity left in the company. In the equity there is the capital you bring at the beginning and at the end of each year, it increases with the profits you make. If you have for example 20kEUR of capital, you make 5kEUR losses, then in the end you only have 15kEUR equity left. This is a sign that financiers look at .
And in some cases when there is something that doesn’t work in the business model, the company cumulates losses and it decreases the equity every single year. So your capital gets “eaten” year by year by your losses.
Some fashion companies have no more equity left in the end. This is a very bad sign for a company. Normally if you ve figured out the profit part, showing business continuity is not an issue.

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The fashion business plan - Break even analysis

The Fashion business plan - The break even point




CASH & FUNDING: The 3 Basics To Prepare Before Working On Your Fashion Business Plan

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Hey guys,

 
I wrote the fashion business plan book from the moment I started working for fashion designers. Originally though, I come from the auditing and finance sector. I have audited many companies across the globe. I actually practiced this for large international listed corporates, in the industrial and banking field. Especially in the banking industry, my job was to evaluate loan applications from companies. So my role was to review the applications and to decide if the applicant companies should be granted the loan…So writing or reviewing business plans finally became something that I got pretty much accustomed to.

What makes a business plan different in the fashion industry

And to be perfectly honest, when I was asked to do it, in the fashion industry I encountered some difficulties at the beginning. In fact usually, when you write a business plan, it’s important to think about a gap in the market and how your product is going to change that. So it means that in classic business plans, you need to have a gap and your product would be a solution. In most of the books that exist today it is recommended to start your business plan by identifying an unfulfilled need (this gap). In most books on the subject, you will read that it is necessary to identify the gap, a need from the start, and to present a solution which will be discussed in the business plan. And yet fashion cannot be considered like that.
If we are being completely honest, we don’t need another brand because it’s a saturated market already. So presenting fashion from the classic angle of a solution offered to fulfill a need does not work for a fashion product. So designers who start in this industry need to get that it is vital to your business to go beyond the need. In fashion, instead of a need, it’s important to create a strong impact from the beginning. Because when you make a strong impact, you create a desire.
You have to make people want your brand.

You have to create emotions, you have to really move people. But that’s not enough. You have to build a whole business model, based on this desire. So it means that the fashion concept has to last in time. And if the fashion concept does not last, if the emotion you create is just temporary, you have no valid foundation for a fashion business. This became clear to me when working with fashion brands. I observed that the fashion business plan was very different from what was done in other industries and that’s where I started thinking about a method to generate it.

Reminder: what is a business plan and do you need one? 

So before we move on to the basics, let’s clarify what is a business plan. A business plan is a document that helps you explain a project, the strategy that you will apply to make a business out of your concept, with the related financial projections. As you may guess, this is quite a massive work. So the question some of you may have is: do you really need to go through all that fuss? Some of you for example tell me that you are planning something quite simple and you don’t plan to apply for a loan or find investors. So you don’t understand why you would need to go through a business plan.
And I always answer that it is always good to have a business plan, even a simplified one. Even if you are not going to look for funding. Why? Because, at least when you do one, even something simplified, you know where it is going and you have an idea of how many of the dresses you made it will take you to break even. This is also an interesting info, even for you personally. You probably want to know when you will be able to earn your first salary because it’s fine and good to sell fabulous outfits but you also need to earn a living out of it. Otherwise it won’t last! So that is one reason to start drafting a business plan.
And in the case where you look for funding or even look for serious business partners to collaborate with, it’s good to have a business plan to show that you are not completely clueless and you know what you are talking about. This is actually one of the pre-conceptions that people from finance have in their mind when thinking of fashion creatives. And you don’t want to prove them right from the first meeting. I am not telling you to lie about who you are but at least have a down to earth approach that indicates that you know your market and the steps to follow to get your collection sold. It doesn’t mean that you are doomed if you don’t do exactly what’s in the business plan. But it’s a way to communicate with other parties, a courtesy, the least you can do when you ask for someone’s money. I’ve seen people get angry about having to do all this financial estimates. Presenting a business plan, especially a valid one means that you have a plan. Nobody will blame you if you don’t do exactly what’s written there. But it says that you have a plan and when people lend you money, you need to show that you have an idea of how you are going to use it.
It’s the equivalent of a resume when you apply for a job.

However, before calculating your revenues and costs, you need to know where you are heading to. It takes preparation, three basics we unveil hereafter.
Button fashion business plan - Fashion FXF - Fashion cross functional

Basic #1 – Be 100% cohesive.

As I mentioned in the beginning, the difference with business plans in other industries, is this necessity to make a strong impact from the beginning. This is a key element that you really need to understand. And it doesn’t matter if you are a sustainable brand, an ethnic brand or a fashion tech brand. A fashion product has to make strong impact from the beginning. And the way to achieve that impact is through the cohesion you achieve through your entire project.
So what does this means concretely?
Firstly you have to speak the language of fashion. Meaning you have to understand that in this industry, looks and visuals have to be perfectly polished. There is absolutely no excuse for that. I covered it already in many previous contents but I insist because lots of beginners in the industry do not understand that.

It’s like when you go to a phone company and you buy a smartphone. The salesperson will talk about the features of the smartphone and compare it to the competition. However no one will ever promote you a smartphone by telling you that it can call. This is a given. So it’s the same in fashion, excellent visuals (photos, videos, websites, lookbooks Instagram profiles) are a given. You have to do whatever it to takes to have a good presentation. One of my customers told me once that she didn’t have enough money to do good visuals. And I showed her websites of new designers who were penniless. Their pictures and websites still looked fabulous. They made it work. So why wouldn’t you?
So when you take a picture of your design, put a good lighting. Please don’t leave pictures with yellow light. Remove the clutter, choose a plain background or if it is cluttered, it has to be artistically interesting and sophisticated. Then the model’s posture and pause has to be highlight your design. Underline a  silhouette.
Once you understand the language of fashion, you have to make sure that your entire brand is cohesive. It means that if you say you are a futuristic fashion brand for example, it has to show in your design. It has to show in the material you use. Maybe you’ll use tech fabric, mixed with metal. It also has to show in the cut you choose. Maybe the clothes you design will show geometric shapes.
Then in the way you market your products, you will distribute your clothes in the places that are more open to that kind of fashion. Asian markets (japan, china, south korea, maybe also London) could be a good fit.
Then if you do an event to promote the brand, you will make sure to collaborate with very futuristic DJs or tech companies to set the tone of your event.

Then in your communication, on top of the traditional fashion magazines, you could also maybe be featured in avant-garde magazines. Why? Because there is a good chance that people who like futuristic trends read those magazines.
And if you decide for example to give some of your profits to a charity, find one that shares your love for the futuristic world and helps to do advanced research in that field for example.
So focus on being 100% cohesive in your approach

Basic #2 – Be crystal-clear on your fashion brand DNA

IN order to be able to align your business and be totally cohesive, you need to know what to align to. Are you going to go 100% on the futuristic side? Or do you need to focus more on the classic style? How to know what exactly to align to?
Well you need to understand and define your fashion brand DNA first. But let’s clarify what is a fashion brand DNA first. Like a person’s DNA makes a person unique, A fashion brand DNA is what makes your fashion brand unique. It’s its identity card.

And before you draft your business plan, you have to be crystal-clear on yours. Why? Since number one criteria to make a fashion business fundable is the strength of its impact and since you achieve that by aligning everything, you need to know what to align it to. And this is why you need a fashion brand DNA. it will be the pillar to which you will align everything in your business.
At fashion FXF we have a 4 hour individual workshop to work on that matter. We go deep through your history, what inspires you in general and what inspired you to create the brand. We make a connection between your story, your inspirations (commercials, movies, ads, paintings, musique, books etc), your actual design, where you want to go, who you could target with your designs and we define exactly what the brand is about. We establish a pattern and find similarities between all the things you said and based on that, we define the identity card of your fashion brand: the physical traits that are always present in your design (and it‘s not only about the logo, it includes the cut, the silhouette etc), your brand personality, its culture, what people say when they wear it, what people think when they see it on someone else and how it interacts with people.
So the idea in the end is to really create a character with your brand. You have all the detailed steps in my book The fashion business plan, that includes a workbook so that you can immediately apply what you just learned on your own business.
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Basic # 3 – Tailor your strategy to your fashion brand DNA

Third step to work on before crunching the numbers for your fashion brand is aligning the strategy to your fashion brand DNA.

When you just start, there’s a chance that you are overwhelmed with information and you don’t know what to do. Plus you probably learn many new things. Strategy – as in the key method that you will use to sell first and be profitable in the end – strategy is key. So at the beginning you will maybe learn the elements of a well rounded fashion business strategy. So you will probably confirm the exact customer that you target, the price point of your products. Then you will decide what you will set to reach your target customer: which distribution strategy you will go for: full online, partly online partly offline with pop stores for example, trunk shows in department stores, Wholesale, online and/or offline multibrand, and so one. Then you will probably decide to promote your events and show your fashion line to your target customer. It is expected that you know where your target customer spends time, which brand and stores they like, what magazines they read, which facebook group they mostly follow, what hashtag they use on Instagram and so on. This approach is quite standard to any industry.
However in order to have a better chance to succeed in your fashion business, and to generate the impact we keep talking about, you absolutely need to adjust your strategy to the brand DNA that you defined earlier.
So for example I love what Dolce and Gabbana did these last years to remind people of its Sicilian influence. I was in Milan last year and I took photos of their amazing flagship windows via Montenapoleone. It was magical. They went a 100% on the Sicilian concept, made small reproductions of a market. The craft was impressive ad beautiful (well that’s actually no surprise because it’s a must). It was really worth looking at. It was worth going there. You have to understand what’s happening in today’s market. You know there are many ways to consume fashion these days. And since we have the comfort of internet, when you have a brick and mortar shop, you really have to go the extra mile and make it worthwhile for your audience. Why should they leave their couch and go there? You have to offer an experience offline that your customer would never have online and that your customer would never have at any other brand. You have to make them feel something. The only way to do that is to revisit your strategy using the angle of your brand DNA. You see the Sicilian influence everywhere. In the collections as well naturally and in the commercials. They kept that strong traditional and popular print in their recent fashion movies. So you will see some strong references there.
This is how you keep things cohesive. And once you know what kind of strategy you are going to apply and how you are going to tailor it to your fashion brand DNA, then only you can price what you are going to do.
In order to guide you into these steps for your own brand we also have it detailed in The fashion business plan book. The book gives a method to find and confirm your target audience with a dedicated workbook as well. Then in another chapter it summarizes a few strategic directions you can go for, knowing of course that you have to tailor it to your brand DNA afterwards. And there is a workbook for that strategy chapter as well, of course.

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Interested in writing your own fashion business plan? 

Here is the tool you need to get for yourself. The fashion business plan provides you with a step-by-step approach to write it all down.

Button fashion business plan - Fashion FXF - Fashion cross functional

The Fashion Business plan - Fashion FXF - Fashion cross functional




 
 
 
 

 
 
 
 

CASH & FUNDING: Raising Capital As A Fashion Brand

Fashion FXF - Fashion business - How to start a clothing line (1)
Hi guys,

In today’s post we interview Rachel Chicheportiche, the President of the high-end accessories brand Jerôme Dreyfuss. It is an excerpt from our book, The Fashion Business Plan, that explains what makes a business plan in the fashion industry so specific and helps fashion designers write their very own business plan.
Making soft and supple leather bags, as well as shoes, for the cool downtown girl, the brand has been carried by most stylish women in the world, including Julianne Moore, Keira Knightley, Sarah Jessica Parker, Diane Kruger and Jessica Biel. It has significantly expanded worldwide. Besides the Parisian flagship store, stores were opened in New York, London, Seoul, Tokyo and Taipeï.
Rachel Chicheportiche has managed both capital raising (MEUR 3) that enabled to fund the brand’s booming activity.

What were the key success factors that enabled the brand to raise capital?

Key success factors are mostly good products and good financials, to be able to raise capital it is important to explain your business plan and the potential of the company, on the other hand, team is crucial, there is no company without a right team.

You raised capital twice with the same investment company. Why did you choose them?

I choose them because we had a good fit, I rely on them and they rely on us. That being said, raising capital is always a question of conditions, they are prerequisite of any raise of capital. To define good condition we must know how the money will be used, and when.

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Which elements of your presentation did the investors especially appreciate?

I think it is a mix of my personal energy and my strength of conviction, investment companies see so many people, if you want them to invest in our company, you have to convince them, to have them believe in your vision of the market, its evolution, and your way to address it.

Once the capital raised, what are the specific requirements from the investors? How do you report to them and what did you implement in order to satisfy those requirements?

Obviously financials reports which helps you to stay always on the safe side and to be sure you are in line with your strategy and you targets.

Which advice would you give to emerging fashion designers who think of raising capital to develop their brand?

The only thing I would say is: If you were an investor, would you invest in your company?
Think about it

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Interested in raising money for your own fashion brand? 

Here is the tool you need to get for yourself. The fashion business plan provides you with a step-by-step approach to write it all down.

Button fashion business plan - Fashion FXF - Fashion cross functional

The Fashion Business plan - Fashion FXF - Fashion cross functional



CASH & FUNDING: 5 Lessons Emerging Designers Can Learn From Nasty Gal’s Bankruptcy

5 hard lessons emerging designers can learn from nasty gal s bankruptcy

Hi guys,
Probably like you these last few months, my newsfeed has been swamped with articles related to Nasty Gal’s bankruptcy. I do not know if it is because I watched the Girlboss TV show on Netflix:  maybe having the impression to share Sophia Amoruso’s joys and tears on screen made me care but reading all those articles made me really sad. Her bold approach to the fashion industry was a beacon of hope for me.
I adored the fact that she was young and built an empire with nothing more than an Ebay account.
I adored the fact that she made it with a strong edgy vintage point of view, a take on fashion she imposed.
I adored the fact that she extended the concept and had the courage to start her own clothing line.

Unfortunately, whichever the industry, at some point an entrepreneur cannot escape some hard facts.
When I read about the bankruptcy, even if I wrote a book that partly points out the significance of finance, I felt really sorry to conclude that once again, finance won.
So I felt the urge to share a few lessons any emerging fashion designer should take out of her story. I know that for lots of you, finance, funding, cash, figures are just not your thing. However if you are on your own, it is better for the future of your brand to face reality. There will be a time when you will have to negotiate with other professionals.
Show people that you are not another dreamer. Show them you have what it takes to be a reliable businessperson.

#1 – Drop the vanity act

Image associée

Once you experience your first financial reward, it can be tempting to use the extra cash to show you are able to play in the big league.
With its first success, Nasty Gal moved its headquarters in beautiful but far too large offices. Besides, the company also opened a 500,000-square-foot fulfillment center in Kentucky to handle its own distribution and logistics although it could have outsourced it to a third company. 
And since we are talking about vanity, I seize the opportunity to go a little bit off topic…Stop using vanity metrics to monitor your business. By vanity metrics I mean the number of followers and likes on social media for example. It is fine (and flattering, admit it…) to see the size of your audience grow. However excuse me in advance for being down to earth: your banker or your fabric supplier will not be impressed that you organized a glamorous fashion show and got 100,000 more likes on your Facebook page.
Keep a cool head. Look at what really matters: business.

#2 – Repeat after me: fashion is a business

It is undeniable. Creativity is vital to fashion. However do not forget that it remains a business. And as any other business, even if design and image is a major part of what you sell, you also need to structure your company on very solid grounds.

What matters is that the system you built generates enough money to sustain your business.
As many pure players did, Nasty Gal opened bricks-and-mortar stores. Once you go into this kind of expenditures, you need to be sure to generate enough revenues to cover the related expenses (rent, sales and administrative staff salary, just to name a few) and make profits. The second store was opened a few months only after the first store.
It would have been safer to stabilize the whole in a profit generating system before opening the second shop.

#3 – Learn to make yourself useless: build processes

ScreamQueens fox scream queens fox tv emma roberts GIF
Sophia Amoruso built her own fashion business from scratch. After the years, she still remained essential to her business. When she pursued other personal projects, her company suffered from her absence.

To avoid that and always in the spirit of lesson #2, while your business will grow, you will need to chunk down your success formula in written processes and train other people to be able to replace you.
This enables you to maintain the quality level after scaling your business.

#4 – Prefer customer loyalty to customer acquisition

Nasty Gal is said to have spent substantial money in advertising and marketing to acquire new customers. And yet those customers did not necessarily stay loyal to the brand.
There appears to be several reasons for the absence of a loyal customer base. The more obvious one I observed in this case is the unequal quality of the products and services delivered. You just need to read the reviews on the website before the bankruptcy. Already at that time, customers seemed to be unhappy with the quality of the products.
 reaction shocked lifetime heidi klum project runway GIF

Before spending money in acquiring new customers, you need to ensure that your system is reliable enough to deliver the products and services you promised to your existing customers first.

#5 – Understand the difference between sales, profits and cash

Sales is the money you make in exchange of a product or a service you deliver to your customer.
Profit is what is left of that money once you withdraw your expenses, your charges and taxes. To make a business sustainable, you need to generate a profit making machine. A machine means that you have a system and methods in place that enable to generate sales in the long term, maintain a good quality level etc. Do not get involved into fixed costs (like the rent of a brick and mortar in the case of Nasty Gal for example) unless you have a reliable analysis that shows it will enable you to multiply your sales.
Cash is the sum of what is in your bank account and in your cash register. Running out of cash is the reason why companies go bankrupt. The factors that impact your cash are:

  • Your profits. This one is quite obvious. If the amount you invoice is higher than the amount you spend, you should have cash left in the end. When Nasty Gal paid heavy marketing and advertising costs to acquire one-time only customers (who probably spent less than what Nasty Gal spent to acquire them), it killed the business.
  • Payment terms. The ideal situation is to be able to impact your buying payment terms to your customers. In the fashion business, this is a tricky game since fabric suppliers and manufacturers do not know you yet and expect you to pay immediately. On top of that, if part of your business is wholesale or if some of your products are in a consignment stock, you will not be paid immediately. It means that you will have to advance a significant amount of cash before getting some back. However designers are sometimes able to negotiate with suppliers and manufacturers. The rule of thumb: Get paid as early as you can and pay as late as you can, without damaging the relationship with the supplier. Negotiate.

Most of the bankrupt fashion business died because they did not go further than the sales logic and did not take the time to build solid process to generate sustainable profits. Think profit more than sales. 

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Did you find this article interesting?

Find more tools to help you with your fashion business in the number one FXF guide. “The Fashion Business Plan” by Bako Rambini is available on Amazon.

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