How to avoid a serious cash flow crisis in your startup fashion business
The other day I was chatting to a designer who had been given some rather scary advice. She was told that it was best around produce around 100 units of each style in her very first production run to ensure she has enough product to fulfil orders.
To be honest, that comment sent shivers down my spine, and whilst you want to be able to fulfill orders once customers order with you online, having a warehouse (or home garage) full of stock that hasn't even been tested in the market is a very risky situation and one that you should avoid at all costs when placing that first production order.
All too often startup brands fail because of lack of cash flow in the business. The easiest way to tie up funds and put a strain on cash flow in your business is to put all of your money into your first production run. Your first production run will be the biggest investment your business will make in the early days and when you think about it, it just doesn’t make to commit all of your money to one purchase order, leaving very little left over to market and sell your products. And when the time comes to design and produce your second collection and your still left with inventory from your first large production run that is now “aged” stock, which becomes particularly heard to shift.
Be smart with your production and only order the bare minimum amount of stock of your first collection. In most cases for a brand new label all you need at most is a few units in each size in each styles or few units in each colour option or design if you're producing single products not dependent on size. This way you can test the market see what your audience likes and dislikes, allowing you quickly to their feedback. If something sells out and you're making locally and have fabric or materials on hand chances are you can turn your production around within two weeks of giving an order to your maker. There is absolutely nothing wrong with creating demand for your product, if someone really wants it they will wait that 2 weeks to get it.
Remember stock does not make money sitting in a warehouse, so be sensible with your first few production orders. Only commit to small production runs, react to your customers needs, sell out and create demand!