April 15, 2021
Managing Growth: Scaling Safely When Clothing Sales Take Off!
By: Peter Gregory
Is your fashion business going to grow in 2021? Scaling a business doesn’t have to be a scary or dangerous process!
As your sales increase and your brand becomes more established, it’s important to grow in an intentional, structured way. You will have to work hard to keep costs under control, attract the right team of people and get the right balance of professional support … but if you get it right, the rewards are there!
We supply labels for a lot of British businesses, so we’re fortunate to have had a behind-the-scenes view of how hundreds of incredible UK clothing brands have grown over the years. In this article, we’ll show you how to scale your fashion business in a controlled, transparent and safe way that minimises your risks.
Cash flow is by far the most important part of any business expansion plan. As your business grows, chances are your costs will sneak up, too. Whether you need to rent more storage space, hire a bigger team or simply order more raw materials, your business will need enough cash on hand to meet your commitments as you grow.
You don’t need a degree in accounting to manage your cash flow properly. You just need to know how to group your costs, then be really disciplined about which types of costs you allow to grow. You might be used to just totting up expenses and income, but if you get to know the basic principles of ‘capex’ and ‘opex’, you’ll find it much easier to make quick spending decisions as you grow.
Capital Expenditure (sometimes known as ‘capex’) is a business cost where you can’t expect to see a return on your investment for a year or more. Capex investments tend to be one-time ‘big’ asset purchases. For instance, if you invest in a fleet of new sewing machines, you would class this as capital expenditure. The hope is that these machines will last you for years, and it could take a few years for you to get back the money you spent.
Operational Expenditure (or ‘opex’) describes the ongoing regular costs that cover the day-to-day operation of your business. If you rent a warehouse, employ a designer, hire a van for a few days or bulk-buy textiles, this is operational expenditure. Opex comes in two forms: ‘overhead’ and ‘direct costs’:
Direct Costs are the costs of making and selling something. For instance, if you sell a garment online, you would count the ‘raw materials cost’ of making the product, any card processing fees you might have to pay, and the cost of postage as ‘direct costs’.
Overhead describes any money your business has to spend, regardless of how many sales you make. Rent and business rates are a good example of overhead costs.
In an ideal world, when you’re scaling your business, you want your overheads to stay about the same, and you want your sales income to grow faster than your direct costs. You also want any capex investments to put as little pressure as possible on your day-to-day expenses (perhaps by using savings or a low-interest business loan).
For most small clothing businesses, ‘scaling up’ means hiring people. This can be an intimidating process if — like a lot of one-person businesses — you’ve never hired anyone before.
The temptation, when hiring your first member of staff, is to go looking for another ‘you’. A talented designer or craftsperson will certainly be a great addition to your team over the long term, but in the short term, it may be better to find someone with a different set of skills.
Unsure About Who To Hire First? Try Sales
According to a recent survey from the UK Government’s Innovation Agency, the sales function should be the ‘key first hire’ for most small businesses looking to grow.
The sales function isn’t just limited to salespeople. If you sell directly to retailers, then it will certainly help to hire someone who can make calls (in person and over the phone) to big retailers. If you’re an online-only fashion retailer, then a website manager or ‘product manager’ for the site could be a better choice. What matters is that the person who takes charge of your sales function can bring much more cash into your business (helping you to pay for those direct costs we mentioned earlier), while at the same time freeing you up to focus on designing and manufacturing more great products.
Plan for more than just a salary
When you take on an employee, you need to budget for their salary, national insurance and pension contributions, as well as any perks you might want to offer (gym membership, company cars etc). If you use a recruitment consultant or HR expert to get your first employee, you will have to add these costs into the hiring process, too.
You also need to give your employees the tools they need to do a good job. That might mean investing in new equipment, budgeting for travel costs like petrol or setting aside some money for training and industry accreditations.
If the costs of taking someone on full-time are just too much to handle, you can hire someone part-time or pay for a third-party service. The choice is yours. Just remember that every new working relationship takes time to bear fruit. Not everyone you hire on day one of your expansion programme is going to be the right long-term fit for the business.
Hire slowly and carefully at first. Don’t feel like you have to settle for someone who isn’t the right fit. Whomever you hire is going to have a big impact on the culture of your business for years to come, so take your time. Your ‘dream team’ is out there — you just have to find them!
As your business grows in earnings and headcount, it grows in complexity, too. Get the best legal, financial and HR advice that you can afford — it will pay for itself in the long run.
Our advice when hiring an accountant, legal expert or HR advisor is to shop around for someone local to you who has a great reputation and who has — ideally — at least some experience in the fashion industry. Ask them to provide a reference from an existing client before you sign up, and talk to people in your area to make sure that they’re as supportive and well-informed as you need them to be.
Every fashion business is different, and every growth story is different. The three elements we’ve talked about in this article (cash flow, team and professional advisors) aren’t the only things you’ll have to think about when growing your business, but they are common to every growth story.
Just remember to plan everything out as carefully as you can, take your growth journey one step at a time and — above all — look after your own health as your business grows.
Good luck with your growth plans this year — let us know how you get on … and when it’s time to get your labels, give us a call!
Thanks for reading!