The Global Fashion Industry is huge, however the Nigerian players are largely still the SME space. There is, therefore, an urgent need to scale up and join the big players.
By Oluwatosin Olaseinde
Did you know that the Global Fashion Industry is estimated to be worth $2.4 trillion, that’s according to Mckinsey. In fact, not only does it touch everyone, but it would be the world’s seventh-largest economy if ranked alongside individual countries’ GDP.
Shocking statistic but while the global numbers are really impressive, most of the players in Nigeria are thriving in the MSME space. This is a really huge global market, how do we then transition from the current space of a micro fashion company to a larger more profitable one?
As your startup or small business hits its moment of stability i.e steady small revenue, steady customers, steady flow of income, it’s time to scale. However, this can prove to a tricky and grueling exercise. You need to continue serving your current clients and doing what works, but you need to plan your finances and marketing for bigger projects and bigger audiences at the same time.
Many entrepreneurs are usually stuck in this quagmire but it’s impossible to scale without mastering your numbers. Your numbers tell you so much about your company. Are you running around in circles? Are you truly making profits? Which products are your high return products? Which items offer fast growth in terms of sales?
You need to have this info at the tips of your finger. You need to speak your numbers comfortably. Many fashion entrepreneurs, especially those without a financial background struggle with this. But it isn’t as complex as you think. It is a critical aspect of your business you need to know. If not you might be unable to take your business to the next level as you are unaware of the lifeline it has.
How to Finance Your Growing Small Business
Your finances are is changing regularly. From initial projections when you opened your doors, to adjust for the real-world market, to financing growth, the budgeting needs a continuous update. While you transition from where you are now to where you ought to be these are things that can help financially.
- Adjust Your Budget: 3 Steps to Savvy Finances
Do you have a budget? Is your budget realistic? For a budget to be effective, it has to be close to reality as much as possible. So write down everything, from the yarns to the thread to the rent and even the fluctuating costs of diesel to keep the lights on. So you need to finetune the budget to reflect your realities, that way you are more prepared for uncertainties as you’ve tried to take into account as much info as possible
From experience, a lot of entrepreneurs are overly optimistic, the sales are usually projected to be so high while the costs are sometimes understated. With some years of running the business under the bag, it helps reduce this error to some extent. Always look at your past reality and reflect new realities, e.g if you made sales of 300 unit of clothing in the prior year and you plan to leverage off more advert via social media or reward your existing customers if they brought new clients, you can reflect the expected new growth.
So while you’re projecting this numbers, back it up with actions. For instance, do you really need that big store? Can you get a smaller one and leverage on social media to drive your business? How can you cut costs without affecting quality and growth?
Project sales and profits—If this is your first budget, estimate a reasonable profit for the coming year. If you have records, pull last year’s profit statement and use that to estimate your sales target for the coming year.
Estimate expenses—Fixed expenses will be easier to assume than variable expenses if you’re starting from scratch. Consider salaries and wages, rent, utilities, taxes, supplies, etc.
Calculate gross profit margin—Subtract the cost of goods (inventory, shipping charges, etc.) from your profit target.
2.) The use of professional service
Also depending on the level you are, do not hold back on utilizing the services of professionals, there are now consultants and finance professionals targeting their business models at firms like yours making the service more affordable. There is an SME accounting firm that charges N35,000 to help SMEs prepare their books. Also if you’re seeking external funding, an investor will prioritize a company with properly recorded financial records over one without it
You need to start thinking of scaling with effective means and that doesn’t mean breaking the bank. How do I grow at a faster pace or gain traction while spending less per unit? These are the questions you need to answer.
3.) Secure Funds for Growth and Sustainability
Capital still remains one of the reasons, many small companies are not able to move to the next level. There are quite a number of ways to secure funds, one needs to choose the one that’s right for the business. As it can be the determining factor if the company will survive.
Some of the possible sources for financing include:
Friends and family: Especially in an environment like ours with limited access to finances. Your business isn’t a charity, draw up a plan, let your friends and family know what return it’s in for them should they invest. Or it could be a soft loan to be repaid over the years.
Crowdfunding: This is pooling resources from several investors. Again you need to sell the pros of why they should invest in you
Startup competitions and grants: There are quite a number of this in the market. You need to read up on how best to apply that way you have an edge over other applicants.
Loans: The cost of the loan is very important, it doesn’t make sense to incur a loan that cost 80% per annum if your business isn’t making enough margin to pay back. The cheaper the loan the better. Ask questions, what is the cost?
Angel investors and venture capitalists: These are organized fund investors that’s making seed investments in your growing enterprise. Develop a pitch and read the fine line with regards to the condition of investment and if equity will be exchanged.
When you’ve kept your books, understood your business and made proper inquiries, it becomes easier for you to make decisions about scaling.
Editor’s Note: This article was originally published in The Spark Magazine. Find the magazine here to read more articles.