Once you have your line sheet started, you can begin to play with your budget. But first, two questions to get you started:
How are you getting funding?
How much can you spend on your first order of goods?
Knowing the answers to these questions will help you to start playing with the numbers in your line sheet. It will give you a clearer picture of what’s possible for your business as it starts out.
Let’s look at a couple of examples.
Scenario 1:
Let’s say I have $50,000. If possible, I only want to spend $25,000 of that on my first order of goods.
STYLE NAME | TARGET COST | RETAIL PRICE | UNITS TO BUY | TOTAL COST | REVENUE |
TECH TEE - BLACK | $10.00 | $50.00 | 50 | $584.48 | $2,500.00 |
TECH TEE - GREY | $10.00 | $50.00 | 50 | $584.48 | $2,500.00 |
TECH TEE - BLUE | $10.00 | $50.00 | 50 | $584.48 | $2,500.00 |
PANT - BLACK | $30.00 | $120.00 | 200 | $7,205.72 | $24,000.00 |
SHORT - BLACK | $20.00 | $90.00 | 100 | $2,875.91 | $9,000.00 |
SHORT - GREY | $20.00 | $90.00 | 100 | $2,875.91 | $9,000.00 |
JACKET - BLACK | $40.00 | $150.00 | 100 | $5,549.82 | $15,000.00 |
JACKET - BLUE | $40.00 | $150.00 | 100 | $5,549.82 | $15,000.00 |
| | TOTALS: | 750 | $25,810.60 | $79,500.00 |
I already knew my target cost, retail price and margin from my original line planning work.
I can now play with the “Units to Buy” column, allowing me to understand how many garments I can purchase for my $25,000 initial investment.
I can then also see that the profit I’ll make on the first order is going to be $54,689.40 (my total Revenue minus my total cost). I now have another $54,000 to put into my next order!
Here’s the tricky part about Scenario 1: Not many factories will be willing to make only 150-200 units of a garment, so you may need to figure out how to have a bigger first purchase. It might look like Scenario 2.
Scenario 2:
After walking through Scenario 1 and talking with potential manufacturers, I’ve learned that the lowest number of units I can purchase for any one given style is 600 units. My color minimum purchase must be 200 units.
So instead of starting with an up-front purchase amount, I can start with minimum number of units:
STYLE NAME | TARGET COST | RETAIL PRICE | UNITS TO BUY | TOTAL COST | REVENUE |
TECH TEE - BLACK | $10.00 | $50.00 | 200 | $2,377.91 | $10,000.00 |
TECH TEE - GREY | $10.00 | $50.00 | 200 | $2,377.91 | $10,000.00 |
TECH TEE - BLUE | $10.00 | $50.00 | 200 | $2,377.91 | $10,000.00 |
PANT - BLACK | $30.00 | $120.00 | 600 | $21,617.17 | $72,000.00 |
SHORT - BLACK | $20.00 | $90.00 | 300 | $8,627.72 | $27,000.00 |
SHORT - GREY | $20.00 | $90.00 | 300 | $8,627.72 | $27,000.00 |
JACKET - BLACK | $40.00 | $150.00 | 300 | $16,649.45 | $45,000.00 |
JACKET - BLUE | $40.00 | $150.00 | 300 | $16,649.45 | $45,000.00 |
| | TOTALS: | 2400 | $79,185.24 | $246,000.00 |
This helps me to understand that I need $80,000 on hand to make my first purchase. I already have $50,000, so maybe I will apply for a $30,000 Small Business Loan to cover the remaining cost.
First, I need to understand if I can afford the monthly payments on the loan before I agree to accept it from the bank or the SBA. If I can, there is a really good chance that I can pay it back quickly, because my new profit is going to be $166,814.76 after I sell through these goods.
It might take me longer to sell through these units though, as I did have to increase my totals, so I need to make sure to take that into consideration as well.
This level of budget evaluation can continue to evolve and refine as you learn more about what is possible in manufacturing and fundraising. I’ve gone through these scenarios many times where you also learn that you can’t make every garment you want to make in the first round. It’s important to remember that this is an investment over time, and starting within reason and within a solid and steady budget will give you a much better chance of success.
Once you know your numbers and what you can make, purchase and sell, that’s when the fun part starts! Designing and Fabric Research are up next.