I’ve never spent money faster in my life. It wasn’t recklessly, it just kind of happened. One second you had thousands of dollars in your bank account, then you had hundreds. Welcome to the game. Manufacturing, and specifically fashion, has one of the most vicious cash flow cycles, and it is way too easy for it to eat you alive. The British Fashion Council produced a report on emerging brands recently, and it included what is one of the most depressing graphs I’ve ever seen.
Basically, a brand has to spend money for nine months to a year before it ever sees any returns, let alone profit. A designer has to design and sample the collection six months before it’s shown, then produce it, then deliver it to the store before they see any money for making those goods. If you’re lucky, you’ll get paid when the goods ship to the store, but more often, especially as you grow, stores will ask for terms (such as net 30 or 60), which means they have 30 or 60 days to pay you after the goods are in their hands. It’s insane, frankly, and it’s why many fashion brands take on—and can be crushed by—debt (RIP Band of Outsiders). Someone has to finance the development and production of these collections, at minimum twice a year, and debt is sometimes the answer. It’s called factoring, and we’ll have a post about this at some point. But early on, try and stay away from it and any other forms of debt.
Instead, try to live within your means. Early on, this is often a blessing in disguise. If you only have enough money to develop and produce a few pieces, just do it. You’ll learn faster and minimize your risk. Learning the hardest lessons when the risk is very low is the goal, and financial restrictions will force you to be crafty, diligent and just pay attention to everything. Lots of money will make you lazy and wasteful, even if it wasn't intentional. Maybe you want to make a piece and you like this one fabric so you buy some, but then another fabric comes along that you deem better. Maybe the fabric was only fifty or a hundred dollars, but this will quickly grow out of control. A restrained cash flow will force you to think about every decision and justify it.
Other cash flow tips
- Watch your bank account and all the transactions. You will learn from them and see how fast money goes.
- Use a good accounting software (Xero, Quickbooks) that will track expenses by category so you can see where your money is going.
- Never let the bank account go to zero. Bills will come up when you don’t expect them to (some people take for ever to cash checks, other things will have deferred payment) and you always need something in the pot.
- Don’t get a credit card until you can support it and consistently payoff your balances. Even though it might be a company card, you have to personally guarantee it, so you will have bad credit if the company does.
- Set budgets for every project. If you’re consistently going over budget something has to change
- Try to find other ways to make money outside of the normal fashion calendar, such as selling online and through other channels. Making money only twice a year (when you sell your collection to stores) isn't fun.