When I first heard about cash flow in relation to my fashion business I thought to myself: What does it have to do with fashion??? I went to fashion school not accounting, right? ....Just checking.
And my ego added: I have a great style, people love my designs, they'll buy them and my brand will be successful...
As I mentioned before...I made quite a lot of mistakes with my fashion brand and paid heavily for them, the above was one of them.
What is cash flow?
Cash flow is the net amount of cash moving into and out of a business.
Positive cash flow indicates that a company's liquid assets (cash) is increasing while negative cash flow indicates that a company's liquid assets are decreasing.
To illustrate it better lets use the example of a piggy bank.
Before you start your business you will need to have coins in your piggy bank to be able to sponsor the cost of your business. Than, as soon as you start the business that little rubber stopper (plug) at the bottom of the piggy bank will come out and the coins will start to fall out.....quickly.
From that point on your challenge will be to make sure that there are always enough coins in the piggy bank to pay for the business expenses. Managing that is called managing your cash flow.
Why is managing cash flow so IMPORTANT for a fashion brand?
As a fashion brand you are creating a product from scratch, therefore you will need to upfront the money for:
and shipping it
All, before you will get paid for it....
Can you imagine? This cycle will take on average about 9 months (in your first season it will most likely stretch to 12 months) and if your retailers will not pay you on time than it will take even more than that.
Sponsoring a year of your business operation (paying bills, vendors, service providers, employees etc.) before you'll be getting paid is not an easy task, trust me!
Not to mention that you would hope that your revenues from these sales will be enough to sponsor your next season (which will most likely not going to be the case in your first season).
Like I said, pretty challenging task!
If you will not have coins in your piggy bank to buy new sample fabrics for your next season than you will not have a line to show (sell)!
If you will not have enough coins in your piggy bank to pay your sewing factory for your production than you will not have products to ship = no sells!
Get the point?
Simply put, If you will not monitor your cash flow closely you will go out of business no matter how talented you are, or how famous you are or how much you sold.....
How to avoid that?
To insure that there are enough coins in your piggy bank at all times you will need to plan it and than monitor it. You will need to know what is your start up costs, your monthly fixed costs, your revenue margins, how much and when will you need to pay for development, production and so on. A complete view of your cash flow for at least a year (preferably 2) ahead.
Sounds overwhelming? Boring? Scary? Don't know how to go about it?
This is where I come in!
Join me this coming Friday, June 3rd at 12pm est for my 3 weeks Finance Bootcamp for Fashion Brands where I will teach you EVERYTHING you will need to know on how to keep your cash flow POSITIVE so you can build a strong, sustainable and profitable fashion brand.
Sign up below now and reserve your spot today!