As a college student, the idea of creating a budget crossed my mind countless times. The costs to attend a university add up quickly when you have to take into account tuition, housing and food expenses, textbook fees, as well as other miscellaneous charges.
Although it may appear difficult to plan and stick to a budget, while also trying to find the funds to do what you enjoy, it is possible. It is important to set aside money for your hobbies and passions. I personally love to shop, which has fostered a curiosity about the fashion industry in me. I can be seen spending hours at the mall or online browsing the websites of all different clothing brands.
I am studying finance and after thoroughly researching the concept of budgeting, I have started to realize the knowledge I have gained can clearly be applied to fashion. Fashion is a creative field, but those looking to prosper in it need to be business savvy and learn how to be profitable in a rapidly changing market.
Planning a budget is essential for your fashion business. Some benefits of budgeting include staying organized, meeting financial goals, saving money, and preparing for the unexpected. In addition, many people who set and follow a budget believe it has helped their mental health since they feel more secure and confident about their finances. A common misconception about creating a budget is that it is a complicated process. But, you do not have to be a financial expert to manage your money effectively. There are ways to make budgeting simple.
Here is a breakdown of the strategies you can use to plan your budget that will lead your fashion business to success:
- Understand Your Finances
- Set Realistic Goals and Limits
- Identify and Assess Your Risks
- Consider Your Sales Cycle
- Constantly Review and Make Adjustments
1. Understand Your Finances
The first step to forming a budget is to look at how your fashion business performed in the past and see where you are now. If you can access last year’s historical data, use it as a guide because it might indicate sales and costs that are likely to occur. It is important to remember that there may be changes in your business plans and the fashion sector that must be taken into consideration when looking at information from prior years.
Start by identifying your sources of income, which might be sales from your brick-and-mortar store, sales from your virtual storefront, or sales from fashion books and online courses you may sell on your website. You can then utilize this information to calculate your monthly income, which will help you notice any seasonal patterns and budget accordingly over time.
Next you need to determine your costs. There are two different types of costs: fixed costs and variable costs. Fixed costs are the expenses that stay the same regardless if sales increase or decrease. Examples of fixed costs that your fashion company might have are rent, insurance payments, payroll, and taxes. Variable costs are the expenses that are dependent on sales and change over time. For a fashion business, variable costs may include cost of material per unit, cost of packaging per unit, marketing costs, and cost of sewing per unit. Analyzing your variable costs will allow you to make better production decisions and figure out the most suitable price for your products.
By understanding where your fashion business stands financially, you can easily develop your budget and work on improving your company.
2. Set Realistic Goals and Limits
Now you can focus on establishing reasonable goals and limits for your budget by building off of the knowledge you have about your financial history. If you create specific financial objectives for your fashion business that you can achieve in a timely manner, managing your money will be significantly easier to do. As a result, you should set short-term, mid-term, and long-term goals that you are able to measure by checking your budget. Short-term goals are those that take less than a year to reach, mid-term goals take several years to accomplish, and long-term goals take over five years and are much longer commitments.
Furthermore, deciding how much money you are willing to spend on certain aspects of your fashion company before disbursing it will save you time and reduce financial stress. By setting a realistic amount that you will not exceed for each category such as product development, manufacturing, and marketing, you will ensure that you are not overspending. A lot of your money will go to product development costs for the creation of your samples, but a reasonable limit on these expenses will keep you from taking money out of other parts of your budget. For manufacturing, you have to determine the cost per unit to produce in bulk that you can afford as well. Marketing is an area that you can easily spend money on for items such as events, website design, and social media advertising. Therefore, being aware of your limit is crucial for maintaining an effective budget.
It can also be beneficial to look at industry standards in the fashion world and research who your competitors are and how they are pricing products similar to yours. Seeing how they allocate their money and their projected margins and growth may help you learn more about what is or is not working. Then you can make alterations to your own prices and budget.
Your fashion business will be set up for success if you are sensible about prioritizing your goals and planning out your limits.
3. Identify and Assess Your Risks
There are a variety of risks that your fashion business may encounter. For example, shipping delays, order cancellations, unsafe factory conditions, changes in trade policies, and weak contracts are all potential risks that can increase costs. But, don’t worry because identifying these possible situations and incorporating them as part of your budget will better prepare your company for financial uncertainty.
Once you identify your risks, assess if they are low-priority or high-priority and the likelihood of them occurring. You might be comfortable accepting low-priority risks since their impacts will not be as severe, but for high-priority risks figuring out how you will manage them and reduce their effects is essential. Keep in mind that it is normal for companies to not be able to anticipate every additional cost over budget, but planning for the risks you can predict will allow your operations to run more smoothly.
You can budget for these unpredictable expenses by setting aside a particular amount of money each month for risks that arise. It is better to overestimate your expenses and underestimate your income, so that your fashion business will remain financially stable if there are unexpected costs or losses.
4. Consider Your Sales Cycle
Timing is everything in the world of fashion. There is a specific sales cycle in the fashion industry with sell and delivery dates that depend on the market you are focusing on. For instance, seasons for the children’s market include Spring Summer, Back to School, and Holiday. Women’s apparel usually has four to six new collections a year with menswear beginning to follow the same seasons. These seasons typically are Spring, Summer, Fall I (Pre-Fall), Fall II, Holiday, and Resort or Cruise. Meanwhile, fast fashion companies have a different season every few weeks.
With your fashion business, you will be working on several seasons at once. It can undoubtedly be confusing, but maintaining a budget will ensure you stay on track financially and lessen frustration. The retail calendar also known as the 4-5-4 calendar is another resource you should leverage. It takes variations in time into account and your sales reporting will be more accurate, especially when you are dealing with holidays.
Planning in advance cannot be overlooked in fashion and when creating your budget you have to consider these fashion cycles. Your fashion business may have an off season where there are notably less sales. While developing your budget, you must try and reduce your expenses during this off season time. It will be beneficial to manage your money so that you have extra funds available if your company needs them as well.
5. Constantly Review and Make Adjustments
A key component of budgeting is revisiting your budget and adjusting as necessary. The fashion sector is always changing and how your company manages money will not be the same forever. Some months you will have to spend more and other months you will need to cut back on your costs.
By examining your budget, you can compare your actual income and actual expenditure to your projections, which will help you create more accurate forecasts and effectively arrive at decisions. It is important that you are constantly going back to your budget as your fashion business grows and making changes if you notice any seasonal patterns or trends.
I strongly recommend checking your budget regularly so that you are aware of your financial situation and have as little surprises as possible about your cash flow. In addition, you can track your progress for the financial goals you set by reviewing your budget.
Budgets can appear stressful to plan and impossible to stick to. However, by following these five budget strategies for your fashion business there is no doubt that you will feel more in control of your finances and your budget will lead your company to success in an ever-changing industry.
The first tip we discussed today was understanding your finances. To establish an effective budget you need to look at your fashion company’s historical data and review all your sales and costs in order to make valuable predictions. Then find your monthly income and where it is coming from as well as your fixed and variable expenses to help develop your budget. Second, set realistic goals and limits. It is essential to determine achievable financial goals and how long you expect them to take so that you can use your budget to check their progress. Furthermore, you need limits for different categories of your fashion business or else you will spend more than you can afford. The third strategy is to identify and assess your risks when forming a budget. By having emergency funds at your disposal and predicting and prioritizing potential risks, you will be ready to handle unexpected circumstances as they come up. Fourth, consider your sales cycle. The fashion industry does not follow the same calendar as other types of businesses and changes based on the market you are targeting, which will affect your spending habits. You also need to factor if you have an off season into your budget. The fifth and final tip is to constantly review and make adjustments. Your fashion business will evolve over time and it is important to alter your budget based on new information. When you revisit your budget frequently, you can check the status of your financial goals as well. Overall, establishing and sticking to a budget will ensure your fashion business is financially stable and relieve you of a lot of stress.