5 WAYS TO FINANCE YOUR BUSINESS
FINANCING YOUR BRAND
As your business grows and your sales increase, your costs for running your business will also increase. Improving old styles and developing new ones will add costs to your budget. This is how it should be if you want to expand your brand and take it to the next level. Most costs in running an apparel business are up front and you have to spend the money long before you can sell the styles and generate income. When you sell your line you will make a profit that you can use to continue working on the next collection. But you will most certainly come to a point where the sales revenue isn’t enough to finance the growth of your company. You will need to look at ways of financing your business and cover the costs until you make enough revenue to pay it back.
Here we take a look at 5 different options for financing your business.
Investors can be business angels, investment companies or anyone providing cash to finance your business. In return they typically get shares in your company. As your business grows, so does the value of your company. Meaning that when you are starting out your company value will be low. Taking on investors early on will mean giving away a larger part of your business, compared to taking them on later.
An investor typically becomes a member of your board and will be part of the decision making. They invest in your business to get some kind of return, typically a financial one. So expect them to have opinions about the direction your brand will take. Therefor you should try to find an investor who can provide expertise and experience to your company. Take a look at their network, background, and previous investments, and make it a win-win partnership.
Take a look at different loan options. You can take on a personal loan from someone you know. Typically personal loans are from family and friends. You have the classic option of going to the bank and ask for a business loan. Here you need to do a bit of preparation and present your case and why they should grant you a loan. One option is to not ask for a loan in general, but to ask to bridge a specific case. Let’s say you have the luxury problem of receiving so many orders that you can’t cover the production costs. In this case it may be easier to get a bridge loan to cover the production until you get paid upon delivery to the retailers. You can show the bank your signed orders, as a proof that you will receive the payments at a certain time after the production is ready.
There may also be institutions and organisations specializing in helping new business. These organisations may have specially advantageously terms for a loan if you qualify.
No matter how successful your business is, you always need to pay back that loan with interest. You will have monthly interest to add to your monthly expenses, but you will remain in full control of your business compared to taking on investors.
There are a couple of big crowdfunding platforms out there, with Kickstarter being the most known. Crowdfunding means that a lot of people contribute rather small small sums in exchange for perks, typically preorders of your product. This way you don’t have to give away any shares and you get orders before you have made the products. It is also a great way of getting some attention and spread the word about your brand. But don’t think the platform itself will do the work for you. You need to put in a lot of work to prepare the campaign, and then put in even more work on the marketing side to let people know about your crowdfunding project.
Your own savings is a great way to finance your business. You can invest money you have been able to save in your own project. This way you remain in full control of your company and there is no interest on the loan. A tip is to book this investment as a loan to the business from the share holder.
5. Other income
Since the production cycles are fairly long, typically around one year, it will take a while before you get any revenue. Therefor an option can be to secure other income on the side of your business. You can keep your day job and work on your business evenings and week-ends. Part-time jobs and freelance assignments are also great options that will free up some time when you can work on your business while generating income. The downside with work on the side is that it takes time and focus from your business and therefore slows it down.
If money, planning, and numbers aren’t your strongest sides, then get someone onboard that can help you out with this crucial part. It doesn’t matter how great your products are, if you can’t make money out of them, and survive until you do.