Category Archives: business finance

Cash Flow: New Kid in Town

OK so I just finished a conversation with my husband that feels a bit like groundhog day. Once again it’s time for stores to take delivery of their orders and wholesale customers are falling off the radar or making excuses to not take the order.

OK I have to get this off my chest.
Rant: If you place an order for something you are committed to buying that item in any other case it seems but wholesale fashion. I don’t understand how stores can place an order, allow a manufacturer to pay to make a product and then just not pay for an order.
Thank you I feel better.

Reality 1: There will always be a percentage of stores that don’t take an order. Stores will close or not ever open. Those you have to factor in and if you have a good sales rep you will almost always be well aware before starting production.

Reality 2: Stores will over order at market. They get excited and place lots of orders optimistic about the next season. However when sales are down and cash flow is low for them they don’t take orders. And guess what orders they don’t take? It’s not the established lines they have been selling for years. it’s the new line they wrote. Yours. So now you have merchandise that you paid to produce and no payment. Hardly fair.

Reality 3: Your showroom reps will not take any financial responsibility for the orders stores don’t take. And they will still want full showroom fees.

Solution 1: You have to protect yourself from what I like to call the “New Kid In Town Shaft”. Your orders should look like contracts that customers must sign. Your showroom reps need to be on your side and clearly communicate that writing an order is a contract to take delivery and that there are consequences for not taking orders. You need a good follow up plan with stores that place orders as you go into production. These are just a few things I assumed were in place when I hired a rep but now I realize I should have clarified these things up front. I love my reps but I now realize I need to have a meeting about how exactly their order writing and follow up procedures are set up so I know where I need to step in or ask for more.

Solution 2: Reacting quickly to sell undeliverable merchandise (canceled orders) is key. Call your good wholesale customers you have already delivered to to see if they can use more inventory. Post a sale online for your retail customers. Move the product!

I just wanted you all to know you are not alone if you are experiencing this and if you are considering wholesale production you need to factor this into you financial planning. This happens to everyone and it is one of the biggest cash flow setbacks for a small fashion business.

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A Fly on the Wall in a Showroom

Today I drove up to the LA California Market Center to my showroom to drop off my Fall samples for market. Market started today so I was a little behind the ball. (Oh the joys of fashion and delayed production.) It turns out my timing hiccup actually played in my favor.

I stayed to help hang and display the line (a nice luxury being so close to my LA showroom) and while I was there a store was placing an order for another collection. Once they finished with that line the rep offered to show them another well known line. They store owners kinda hummed sayng they carried the line before and that the price points were a bit high but said to show them a few things anyway. They looked and commented that the items were cute and asked for prices. Then they commented that the items were darling but designed to be layered and really only “darling” when they were layered. They went on to say that one you put the layers together to make an outfit the customer ends up paying over $100 for one outfit and in this economy it just doesn’t make sense.

They are right.

Look I struggle with cost vs profit margin. It’s tough. For most of my items I don’t make the normal “double your cost to get your wholesale price” spread. I often work backwards. I look at what a fair market price is and then try to get my labor and fabric prices down to increase my profit margin. I do this in hopes that stores will pick up the line in this economy and that it sells well for them. If I can get loyal customers now by catering to their needs (designing at price points that fit our current economy) then I know they will be loyal customers when the economy turns around and then I can reintroduce higher price point items.

I encourage you to look at your prices today. Do they fit the current market/economy?

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What I know about Cash Flow…or lack thereof

OK so this post is way overdue! I have to admit that sometimes I hesitate to write on a topic because I haven’t completely figured it out yet. BUT I have reminded my self of my committment to my readers to not share all the answers but what I have learned so far on my journey that may help others. So here it is my list of what I know about cash flow and a fashion business.

1. It sucks. But it must be mastered if you want to run a successful profitable business.
2. You need a line of credit but most banks won’t give you one in your first couple years until you show increased profitability and a certain level of income from your business. This means you have to rely on credit cards with usually higher rates in the meantime.
3. When you are ready to apply for a line of credit be sure you have: a tax return of the most recent year. A profit and loss sheet showing you are not spending more than you are making. Banks want to loan to people they know can afford to pay them back.
4. Be smart about what you use a line of credit for. Using it for production costs until your customer pays for the order (since you front production costs) is a smart way to use the line of credit. Buying all of your materials up front so you can receive a discount is another smart way to use your line of credit. Redecorating your studio is not a smart way to use a line of credit. Wait until you have cash in the bank for something like that.
5. Know your terms. If you have to pay your line of credit back every 30 days you need to make sure you are managing your production and cash flow effectively. If you are not good with numbers hire a bookkeeper. Yes it’s an expense but much less costly than all the interest fees and potential loss of your line of credit.

Ok so all this talk of line of credit. Do you really need it? Why should you consider it?
1. You have opportunities to go into larger ventures. Often deals with larger companies have net terms and high volume. If production is going to cost $5000 dollars and you won’t get paid on your order for 60 days the line of credit bridges the gap.
2. You currently buy your supplies in small quantities and as such pay a higher price for goods. With this you run the risk of the supplier running out of your material when you need more. However you can’t afford to buy more at one time due to cash flow. This really applies to businesses that wholesale and plan their seasons 6 months or more in advance. Cash flow aside (If you pay $12 a yard because you buy less than 15 yards at a time consider that you can buy 30 yards for the same price at wholesale. Start calling the direct manufacturer if you are currently buying from a distributor.)
3. You are having a hard time paying for both your household expenses and fronting the production costs for your business.

My husband was in banking prior to joining kangacoo designs and still I was denied my first time I asked for a line of credit. It’s very important to find a bank that deals with small business start ups and will take the time to tell you the requirements they have for offering a line of credit. Not all banks have the same requirements so shop around.

Cashflow really goes hand in hand with production managament, sale management and also in making smart choices when buying services to help you atart up your business. I will talk more about this in the coming months. In the meantime I welcome your questions on cash flow. Email me katietfbm@hotmail.com.

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Etsy App: Sales and Expenses Summary

Yesterday I was working on my sales and use taxes.  I used a program called Metricorn to help.  This is a great tool and only costs $9 for 6 months.  It breaks down your sales and expenses on Etsy by month, quarter and year.  It also breaks down taxes you have withheld from customers.  Additionally it reports the dollar amount you offered in coupon discounts.  Over all this is a great app; the net sales and shipping did seem to be accurate.  One downfall, expenses were not accurate.  Compared to etsy reports under the billing tab, the fees Metricorn reports are substantially less.

SAMPLE METRICORN REPORT

SAMPLE METRICORN REPORT

It also shows a graph to give you a visual of your most successful/slowest times of year.

SAMPLE METRICORN GRAPH

SAMPLE METRICORN GRAPH

This is a great graph to help you review your year.  When I looked at my report it showed Q2 as my slowest quarter.  My sales we actually more than cut in half.  I was a bit shocked until I remembered this was my busiest time of year for wholesale.  It was when I received my largest order to date on top of my normal wholesale load.  I slacked in promoting my retail sales to manage the wholesale workload.

This is a valuable analysis and reflection.  One that I will use to make changes this year.  I am learning to better manage production flow so I can free up more time for marketing and will continue to make this an emphasis in 2013.

Even if you don’t go with Metricorn I do encourage you to look at last year’s sales to help you plan for more success in 2013.

 

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Revenue Streams: How to create them

I don’t talk too much about my personal life here.  But today I will give you a little insight to the woman behind the business, me.  I started kangacoo designs when I was 3 months pregnant and found myself laid off from a six figure corporate job.  Ouch!    I took my sales and marketing skills and combined them with my desire to have a creative career, then combined that with my nesting instincts and started sewing baby blankets.  With more time to surf the web I found Etsy and kangacoo was born!

ka*ng*acoo; ka=Katie my first name, ng=Nguyen my married last name, coo=what babies do and I was about to have one.  (The a just made it flow and referenced a word everyone knows to make the name more memorable.)

Fast forward 4 years and now I run kangacoo with my husband (who was also laid off from a good paying job).  We balance work and play and caring for Marlise.  It’s not always easy but it works for us.  Here’s what we look like in case you are curious.  We just took this on the 4th.  🙂

I have worked hard to grow my business and got some lucky introductions.  (But again I think that was through hard work of reaching out to lots of people.  Always give yourself credit, no one is just lucky in work success.)  Since kangacoo is the sole supporter of our household we really have to focus on making the business more profitable.  I wanted to share with you one way we are doing this.  Exploring different revenue streams.

I challenge you to explore different revenue streams for your business too.  Here are some to start with:

1.  Create products with lower price points.

Can you make coordinating hairbows to match your dresses?  Perhaps a matching doll dress to offer?  Do you make accessories?  Is there a new one you can add that is less expensive?  By creating different price points you broaden your audience.

2.  Create special occasion pieces.

Do you make every items?  How about adding a few special occasion pieces?  Special occasion shoppers are a huge part of the market.  Adding in these pieces will boost sales!

3.  Flash Sales on Facebook.

Do you hold flash sales on Facebook?  These are a huge success for me.  Offer a product at a sale price and have fans leave their Paypal address on the post.  Send a bill and ship.  It is easier to send them to the shop but I find I make more sales by selling direct on Facebook.

 4.  Find a New Audience.

And keep the old of course.  I sell on facebook and Etsy (and wholesale but I am going to stick to retail today.)  Have you thought of adding a new venue like Artfire?  or maybe Ebay?  It is a whole new shop to manage but if you think you can sell product and manage another shop give it a try.

Not ready for another shop to manage?  How about virtual trunk shows.  This is something I am venturing into.  Having others sell your product and rewarding them is a great way to spread the word about your company.

I am always happy to answer your questions.  And you just may find them anonomously featured here!  Email me at katie@kangacoo.com

 

 

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How to Calculate Wholesale Prices

Pretty excited to bring you my first “Ask The Fashion Business Mentor” Post!

—-Is retail always 2xs wholesale?

At least.  Once you start selling to large chains they will talk down your wholesale price so they can turn a larger profit.  It also gives them more wiggle room for the big percentage sales (50% OFF!) they have.  They couldn’t make money if they only doubled wholesale and they will expect you to lower costs if you want to do business.  Keep this in mind when you price a collection that you plan to market to large chains.


–If you figure out what retail pricing would be according to the formula below, and think that it is too high, how low should you go to get the wholesale price down to get the retail price down?  Or do you make other changes such as fabric type to get the price down?        

  • cost of dress x 2 = wholesale x 2 = retail (if this is too high?)               
  • cost of dress x 1.5 = wholesale x 2 = retail               
  • cost of dress x 1.25 = wholesale x 2 = retail (Is this too low and not worth doing at this point?)

Fabulous questions I personally struggled with.  If it costs me $20 to make a dress it is very hard to ask $80 for it if my target market is toddlers.  Wholesale pricing is based on volume and when you sell in volume you buy in volume so your costs go down.  The problem is that if you are just starting out you aren’t getting the price breaks in materials or production (sewing).  You need to do some research and planning here to project volume costs:  

1.  Project Volume

Determine the volume you think you will sell in a season.  How many stores are you targeting and how many pieces do you think you will sell?  In forecasting you need to be realistic and conservative. 

2.  Get Volume Based Materials Quote

Determine how much fabric you will need for the season based on your projections.  Say you determine you need 30 yards of fabric (same color) and you need 3 colors.  So a total of 90 yards.  You will get wholesale pricing on this so find out what it is.  If you are already getting wholesale pricing you may get a larger discount for volume.  Ask and negotiate.  Almost all fabric dealers will negotiate and all of them offer wholesale pricing.  Buy from the source not the local fabric store.  You can buy a bolt of fabric direct for the same price as a few yards at your local shop. Don’t forget to get quotes on notions and labels too.

3.  Get Volume Based Production Quote

Talk to your seamstress/sew shop about costs based on volume.  How much if I bring you 10 of the same thing?  20?  50?  100?  Time yourself sewing the garment and see if this price is fair.  Keep in mind if you use a home machine for sewing it takes 1/3 of the time to do it on an industrial machine.  I have one and now that I have timed myself sewing I realized my seamstress was making $40/hr.  Too Much!!!

4.  Calculate how much one garment will cost based on these volume quotes 

Now use this formula:

cost of dress x 2 = wholesale x 2 = retail

If this is too high based on what you think is fair market value you can cut into your profit margin or you may need to make changes in fabric or how your garment is constructed.  You can ask your seamstress what part of the garment is taking the longest or how you can change the design to make it easier to produce.  OR You keep the high price and market it to high-end clients.  You may sell less but you have a larger profit margin.  If you do this then you really have to make a unique product worth the price not just slap a high price on a generally simple product.

So initially you will be making low volume (which will cost you more) but selling it for high volume prices.  Do the math though, don’t lose money to try to wholesale your line.  If you are losing money you need to make changes to your product or charge more.

Want to “Ask The Fashion Business Mentor” an anonymous question?  Email it to katie@kangacoo.com.  OK I will know who you are but I won’t tell.  However you may see your anonymous questions and my answers here on the blog.

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Business Finances:Mistakes and Corrections

Just like you, I have many things to tackle in 2012 if I want to keep my business going and growing but I have figured out that first and foremost on my list is better financial management and structure.  I have been blessed with success as a result of hard work in 2011.  I have increased my gross sales 8 times what it was in 2010.  However I am finding that there is nothing left in the bank.  Yes nothing.  Which begs the question “what the H E double hockey sticks?!?!” How does that happen?

Let my mistakes be your lessons.  I have created this blog to help small fashion business along their way I want to share some mistakes and corrections I will be making.

  • Mistake 1:  Not opening a business account and using accounting software from the start.
  • Mistake 2:  Showroom fees and production costs are eating all my profits.
  • Mistake 3: Advertising on faith.
  • Mistake 4:  Too many hats, too little time, lost focus.
  • Mistake 5:  Giveaway Frenzy!

Mistake 1:  Not opening a business account and using accounting software from the start. 

I did not anticipate the growth I had so I have simply used my PayPal account and transferred money to my banking account to pay for business expenses.  I am a sole proprietor so really this can all be figured out with a lot of help from my accountant but it really has created unnecessary work and has not given me a clear picture of the business financial picture since I have personal income and expenses not involved with the business.

Correction: Business account is up and running, separate PayPal account and merchant processing is now set up for the business.  Ths will allow me to have a clear picture of business finances and help me make better financial decisions.

Mistake 2:  Showroom fees and production costs are eating all my profits.

Now this is sticky.  Without my showroom reps I would not have the success I have had this year.  From 4 to almost 50 retailers in a year!  However, while 50 sounds like a big number what really matters is the amount they are spending and the profits you make.  My production costs are high as a small business and I find I am paying monthly showroom fees some months without enough showroom orders to cover showroom costs.  So I have lots of product going out but very little profit coming in.

Correction:  First I am going to figure a way to cut material and production costs in my next season.  I do have a few ideas.  Next, I am going to do a year analysis of showroom fees, commissions and sales to see if there may be a way to restructure payment arrangements. Also working with my showroom reps to maximize sales and reorders is in the plan.

Mistake 3: Advertising on faith.

I have a small budget but I did advertise with a few magazines and blogs this year.  They are a bit newer but have decent followings.  However, I was a little disappointed with the results.  I am able to track in my Etsy shop where my visitors and sales originate and have found that the avenues I have chosen have yielded little or no results.  I have had much more success with social media relationships and blog reviews.

Correction:  Save costly advertising until I can REALLY afford it.  I will continue social media marketing and I have brought aboard a new PR intern to gain reviews and features on blogs and in magazines.

Mistake 4:  Too many hats, too little time, lost focus.

Any small business owner will tell you it’s a 24 hour job but how you spend those 24 hours is key!  I have found myself doing a lot of labor and research this year which has sucked time away from design and strategy.  At the end of the year I was exhausted and discouraged and it was time to start a new wholesale season.  UGH!  I didn’t stop to delegate (or trust to delegate, or be able to afford to delegate) so I wasted a lot of time I could have spent on my best skills.  Not a good business move.

Correction:  My husband now does all my errands like running around to vendors, meeting with the seamstress over smaller issues, creating reports for me to analyze and make business strategies and has also started sales in territories not covered by my reps.  I have also taken on a PR intern who I can delegate marketing tasks to.  This is going to free up my time to focus on the core of my business-designing quality product.

Mistake 5:  Giveaway Frenzy!

Now I do have a lot of fans as a result of giveaways but not many giveaways have resulted in immediate sales.  And now facebook makes it almost impossible for your fans to see your posts so I know I am reaching a small percentage of the fans I have gained from giveaways.  Consider the cost of the giveaway items and I am not so sure this is a good strategy.

Correction:  I will be way more selective in giveaways and I will focus more towards blog based giveaways with active followings, I have had more success in this area.

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