Building A Fashion Business?
So you want to be a fashion star, with your name
on a label and your own corner in a department store? It
takes more than great designs to get there... you're better
off with a sound business plan and an idea about sources for
venture capital. For more on the basics, read on:
Fate has been kind, financially speaking, for up and coming
New York designer Kenneth Richard. Just two years ago and first
starting out he had only four days to go to his first show with
no idea where to find the money to actually stage the event.
A provident phone call to his accountant revealed a well-timed
income tax refund and the show went on. Additional financing was then
provided by a close friend and former employer who volunteered
operating capital.
Richard realizes that the road ahead is strewn with financial
potholes and perils. Although his company is currently self financing,
the young designer is already planning and preparing for the day the
business will require significant new outside sources of capital.
In other words, he's thinking and acting like a manager.
The fact is, stripped of glamour and reduced to bottom-line
financials, the fashion world is very similiar to other creative,
entrepreneurial ventures, and raising money is the same in
all venues. With this in mind, We offers these basics to any
of you who have the yen to see your name on a label.
Q: Do I need a business plan?
A: Absolutely. If nothing else, it forces you to establish goals
clearly and concisely and is required by serious investors. A
consultant will write one for $5,000 and up. Do it yourself by
following a sample plane and directions in a guide such as How
To
Write a Business Plan by Mike McKeever, Nolo Press, 1983.
Q: Where do I find people with money?
A: Good question. If you don't have a rich uncle, friend, or
former employer it may be difficult. These people are more likely
to believe in you and your vision. New and fledgling businesses are
only rarely backed by professional money men. Investors generally
only look at profitable companies with established track records in
industries in which they are familiar and comfortable. Venture
capitalists want to see you invest as much of your money in the
company as possible--if you don't believe in yourself why should they?
Directories of venture capitalist firms list them by geographical
region (they like to be near to keep a watchful eye) and by industry
preference. Also look to see who has backed other Seventh Avenue firms.
Q: What do venture capitalists want?
A: In addition to a piece of the action they want to see that you
have the right people in the right places, they want a 40% annual
(yes, annual) return on their investment, and they want a clearly
delineated way to cash out their stake in three to five years down
the road. Investors will also want to see all of your financial records.
Q:I'm successful, profitable, and have a good track record.
What are my options?
A: It depends upon the needs of your individual business. Some
go the route of the initial public offering (IPO), although as in
the case of Donna Karan, successful completion is not guaranteed.
Other possibilities include the aforementioned venture capital firms,
private investors, debt, and self-financing through cash flow and
profits. Only your, the owner/manager can decide what is right. After
all, money is nourishment for your business--too little and it will
die of starvation, too much and it will become fat, bloated, and
inefficient.
Q: Where do I go to get help with the basics and to see if
I'm on the right track?
A: Don't forget your local Small Business Administation. They
not only offer numerous brochures on basic questions but also
guarantee bank loans for those who qualify. Your generally need
to be able to raise 10% of the amount requested on your own. A useful
guide to SBA loans, services, and commonly asked questions is the SBA
Hotline Answer Book by Gustav Berle, John Wiley & Sons, 1992.
Q: How do I know when I am ready for an IPO?
A: The investment bankers will be knocking down your door. Most
companies go public over the counter, on the NASDAQ. And very
important, choose your banker very carefully. How long have they
been in business? What is their track record? Do they have experience
with other fashion or apparel companies?
The primary ingredients for success are still hard work, dicipline,
motivation, and determination. Properly financing your own
company is just one, albeit critical. element of the overall business.
When you're raising capital you're negotiating a deal. only give up
what you are willing to in order to obtain the money you want and
actually need.
by Steve Erb
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