It will come as no surprise to you that starting your own fashion brand is expensive. Even as your sales increase, and your business grows, your costs will increase. Meaning the money, you earned from previous sales will not be enough to finance growth. You will need some kind of financing to bridge the gap!
This can feel disheartening – especially if you aren’t an a-list celeb with mounds of cash you can tap into. So, I thought I’d go through three of the most common financial sources available to for a fashion start up.
Equity:
This is where an investor will provide cash and invest it into your business, and in return they become part owners of your business. You can agree a percentage that they own based on their investment. Depending on the agreement you sign, it may mean, that you’ll have to share some of the decision-making with that investor. If you’re serious about considering this financial resource, the best equity investors would be ones that can help you build your business. They have expertise in this industry, contacts even or just other types of advice that will be beneficial to the success of your brand. A board of directors will be formed and you will have to report to them when making key decisions and report to them regularly on how the business is progressing. Which obviously has it’s pros and cons. These types of investors are usually actively looking for companies to invest in too, which makes the pitch part of the conversation somewhat easier.
Debt:
This option usually comes in a form of a loan, which you are required to pay back. Most loans don’t just require you to pay back the amount you borrowed, they will add interest onto the amount and require you to pay it back in scheduled payments they decide upon. This isn’t true for all loans though – it will depend on the source of it. Taking on this kind of debt will mean you have additional cash outflow that your business will need to support each month. This is a huge burden to take on in the early stages. However, the beneficial aspect to this option is; you aren’t giving away any equity in your business- you still maintain full control. Debt providers aren’t looking to hand out their money – there is a high element of risk for them and are mostly concerned with getting their money back. So when approaching this option – you will need to have a solid business plan that shows your sales projections and they may require to see your personal credit etc.
Other Income:
This is option really includes a variety of sources. There are awards and competitions fashion startups can enter that offer grants and even mentorships that come with a financial element. The benefit of these types of funding is the will be no interest to pay on the amount, and sometimes you won’t ever need to pay back the source. You also don’t have to give away any ownership of your business. However, they usually require a lot of attention and additional work to maintain, taking up your time and energy- which could take you away from your business and its growth.
I advise spending some time researching what is available to you and your business. Factor in all the above, and decide what’s the right path for you and your business. There are lots of resources out there specifically for the fashion industry – so take some time to research what is available in your country and/or city that you could apply for.