Statutory regulations and getting started with your business

It may be that you have had a burning desire to create your own collection for years, training extensively and putting yourself through university and college courses or, perhaps, you fell into the world of fashion and design by accident and have become ”˜hooked’ on the industry ever since! Whichever way you entered into the industry you have arrived so make sure you are here to stay!

Below are some pointers to act as aide memo ire:

1. Starting off ”“ getting the company formed 

There are hundreds and hundreds of designers and would-be designers clamouring for a piece of the action. First you have to decide what type of business you want to run. There are three main options ”“ do you want to be a sole trader, a partnership or a limited company? There are pros and cons with all three identities. 

Sole Trader



Operating as a sole trader means having sole responsibility for the running of your own business. You can trade under any name you choose including your own name. Funding of the business is from personal investment, loans and grants ”“ see above.

It does not involve as many formalities as other types of businesses but it does mean you are personally responsible for all debts incurred. You also get to keep all the profits (subject to taxation rules). Accounts do not have to be submitted to Companies House but you must keep detailed records for taxation purposes and you must register with the Inland Revenue as self-employed. You also need to pay national insurance. All profits from the business are classed as personal income and you will be taxed at standard personal rates.



Partnership



Partnerships can have between two and twenty partners who take an equal share of profits made and are jointly responsible for debts incurred. Each partner is liable for total debt incurred and not just their own share. Personal assets can be used to pay debts.

It is usual to produce a deed of partnership detailing how the partnership will be run, showing division of labour, management responsibilities, profit sharing etc. All members of the partnership are self employed and pay tax and national insurance individually on their income. There is no need to produce audited accounts. Most partnerships are funded by personal investment from the partners, loans and grants.

Limited Company



A limited company has a separate identity to the people running it and is owned by shareholders. There are two types of limited company ”“ public and private.

Private companies cannot publicly trade their shares which are usually held by employees, family members and acquaintances. Most small businesses are private limited companies and the directors are often the same as the shareholders.

Public limited companies can offer their shares to the public to be traded on the stock exchange with a minimum of £50,000 share capital issued.



It is necessary to employ a solicitor to set up a new limited company as there are many formalities involved. A private limited company must have must have at least one director and a company secretary. A Memorandum of Association and Articles of Association must be registered with the Registrar of Companies and there is a fee of £20. A Memorandum of Association describes the purpose of the company while the Articles of Association detail the rights of the shareholders and the powers of the directors. There are also other forms to be completed which need to be signed by a solicitor. Audited accounts must be submitted to the Registrar of Companies one year after trading starts and every subsequent year.



Directors are employees of the company and need to pay tax and national insurance on their earnings. The company first pays corporation tax on profits

There are rules regarding the business name you choose. You cannot use a name already in use ”“ this can be checked at Companies House – and you must use the word ”˜limited’ or the abbreviated ”˜ltd’ at the end of the name. There are some words which cannot be used as they may be offensive.



A limited company can be limited by shares or by guarantee. The owners of a company limited by shares would lose the value of their shareholding should the business fold. Being limited by guarantee means that liability is limited to an amount the member has agreed to contribute if the company is wound up. Limited by guarantee tends to apply to not for profit organisations whereby the monies made and received are ploughed back into the business and directors do not receive a dividend.



Value Added Tax (VAT)



You do not have to register for a VAT number immediately but some people prefer to register immediately so it gives their company a higher status and hence credibility. It implies to prospective clients that your turnover has already achieved the VAT sales threshold of £56,000.



When your turnover exceeds £56,000 within a year you will be obliged to pay VAT and to show VAT on your invoices. VAT is usually paid every three months after completing a VAT return. You can register for VAT if your turnover is below the £56,000 as some customers prefer to deal with VAT registered businesses. To register, see your local phone book under ”˜Customs and Excise’ or visit the web site at www.hmce.gov.uk.



Other useful contacts



Companies House

New Companies Section

Crown Way

Cardiff

CF14 3UZ



I have found Alan Mears to be particularly helpful on 029 2038 0713 Fax 029 2038 0857 www.companieshouse.gov.uk  



The Joint Fashion Industry Team

Helpline number 020 7667 4916 or email This email address is being protected from spambots. You need JavaScript enabled to view it.
 



2. Finance



Now that you have formulated your identity, how do you get started? You obviously need to generate a financial reserve to commence your collection and ensure your survival while opening accounts and start trading.



Small Firms Loan Scheme



This initiative guarantees loans from the banks and other financial institutions for small firms that have viable business proposals but who have failed to get a conventional loan because of lack of security. Loans are available for between 2 ”“ 10 years on sums from £5000 – £100,000 (£250,000 if a business has been trading for more than two years). The government-backed agency Small Business Service guarantees 70% of the loan (85% if trading for more that two years). In return for the guarantee you, the borrower, pays the Small Business Service a premium of 1.5% per year on the outstanding amount of the loan.

This premium is reduced to 0.5% if the loan is taken out at a fixed rate of interest. Further discussions regarding the loan amount, interest rate etc. are matters that need to be discussed by you and your bank.



Remember, forms need to be filled in and it takes time to process the applications at the bank. You need to forecast your cash flow requirement in advance to benefit from this scheme. This means formulating a business plan.



Department of Trade and Industry

Regional Enterprise Grant Scheme for London



An Enterprise Grant is a once only form of financial assistance available for most areas in London through the Government Office for London (GOL). The grants complement commercial funds in helping small and medium sized firms (SME’s) to finance growth. The criteria for applicants are as follows: –

Small Enterprise

1. Fewer than 50 employees

2. Annual turnover of no more than Euro 7 million (£4m) or a balance sheet total no more than Euro 5 million (£3)

Medium Enterprise

1. Between 50 and 249 employees

2. Annual turnover no more than Euro 40 million (£25m) or a balance sheet total no more than Euro 27 million (£17m).



The grants are available for spending on assets such as equipment, plant and machinery; acquisition of patents; associated land, site preparation and buildings. This is net for cash flow that is a capital expenditure. The amount of grant depends on the project. Up to 15% gross of capital costs may be supported up to a maximum grant of £75,000. High growth businesses with quality projects will be given preference and grants will only be allocated where it can be proved that without the funds the project could not go ahead. A project should have good prospects of becoming self-sustaining.



Department of Trade and Industry Regional Selective Assistance (RSA)



Assisted Areas are part of the UK where regional aid may be granted. In London this applies to parts of Enfield, Haringey and Waltham Forest. Grants are available to most manufacturing and certain service industries. Amounts of between 5% – 15% are given to projects that will create new jobs or safeguard current employment. The company must demonstrate that without the funding the project could not go ahead.

Applications should be made through the Government Office for London:



The Phoenix Fund ”“ encourages entrepreneurship in disadvantaged areas by providing assistance to business support providers and to new businesses through various initiatives such as mentoring and rural renewal.



Shell Livewire – Helps 18-30 year olds to start and develop their own business idea. Also hosts a national competition for new business start-ups and gives cash awards to top projects. Tel 084507573252



The Princes Trust ”“ Provides loans of up to £5,000 and grants of up to £1,500 for young entrepreneurs (aged 18-30) who can show they have a valid business idea or project and have been turned down by lenders because of age, credit record or unemployment history. Also for people leaving the criminal justice system, leaving care, disabled, parenting alone or facing discrimination. Tel 0800 842842



New Deal 18-25 – Part of the Governments Welfare to Work strategy. Provides support and advice for New Deal jobseekers and helps to draw up business plans. Tel 0845 606 2626



New Deal 25 plus – As above but aimed at the over 25s.Tel 0845 606 2626



New Deal 50 plus – Provides a Personal Advisor and an employment credit to help start up your new business. Tel 0845 606 2626



3. Are you ready to start selling?

Once you have your collection accurately costed, correctly sampled and you know all the relevant ”˜associated information’ you are ready to start selling. But are you sure you are prepared”¦”¦.?



The associated information is important to your professional approach and below are the typical questions you need to answer at potential client meetings:



i)Fabric

Ӣ Stock or forward order?

Ӣ Minimum quantity, minimum colour runs?

Ӣ Lead times including delivery to your specification?

Ӣ Fabric test available?

Ӣ Payment terms? (Aim for 30 days credit and not payment on delivery, but remember the fabric agent does not know you so you are a high risk)



ii)Garment costing

Ӣ What is the lay costing?

Ӣ Are you going to sell in ratio packs?

Ӣ Are you going to have a minimum order quantity?

Ӣ If yes, by colour or total quantity?

Ӣ What is the overhead structure of your business?

Ӣ Do you know your fixed and variable coasts?

Ӣ What gross margin are you working to?



Before you start selling you need to know each garment inside out and what flexibility in your cost price you can offer. One of the fundamental concepts you have to establish is whether you make to order from your collection or produce stock, in ratio packs, so you can then go and sell. Only you can make this decision but remember it is a difficult out there. Don’t tie up precious resources unnecessarily. Flexibility is a key component to success and always remember Cash Flow is King.



Getting on the right track ”“ business planning.

Everyone needs help and advice but who is out there who really understands your business? Try and contact the following Business Support Organisations for help: –



Fashionworks

“Of course creativity and artistic expression are at the heart of a successful design business,” says Doreen Adusei of Fashionworks, the design and product consultancy, “but you must also value sheer technical skill and the realities of production and commerce. Far too many designers lack this real edge, and if they are to make a go of it they need the sort of extra help that is available from specialist government sponsored training schemes”.

Free to Finsbury Park Residents – Part Funded for Other Areas of London

Summary of the [email protected] Fashion/Textiles Graduate Project – THE [email protected] project currently being run for unemployed fashion/textiles graduates. It covers employment and self-employment support. With Industrial skills training in portfolio targeting, design development and creative/technical product realisation (with industrial experience)

Contact: Doreen

C/o Islington Enterprise Agency

64 Essex Road, London N1 8LR

Tel 020 7704 9747, Email This email address is being protected from spambots. You need JavaScript enabled to view it.
 



Portobello Business Centre

This well established centre offers all kinds of advise for the fashion industry. The Fashion Desk Advise includes :Start your own fashion business courses and the Fashion Business Management Training programmes.



Contact: David Jones,2 Acklam Road, London, W10 5QZ

Tel 020 7460 5050 Fax 020 8968 3660



4. How to open up accounts



Once you are totally prepared and confident with your collection you can go out and sell. Where do you begin?



a) First identify your target customers e.g. independent wholesalers, agents, multiple retailers.



b) Conduct both a comparative shops (shops selling similar merchandise to your own to review your competitors offer and target pricing) and also directional shops. Remember, larger multiples can operate on margins that average between 2.6 and 3; i.e. a garment selling for £79.99 divided by 2.6 = £30.76; £79.99 divided by 3.0 = £26.66. Therefore your selling price should be aimed between these two parameters. It’s a rough guide for you.



c) Make a provisional appointment to review your collection. Your heart may be beating in your mouth when you make that call but remember nothing ventured, nothing gained. We all have to make a start somewhere. One tactic is to send a postcard type promotion showing a garment (remember do not date the front of the card) with just your contact details on the back. You can then follow this through a week later with a call explaining that you are in the area and ask if they have a spare 20 minutes. Keep the time short”¦”¦everyone is always so busy! Remember to introduce yourself and be yourself”¦”¦be confident but not aggressive. Always keep a note of your conversations and jot down your contact and their response in a book. You will be amazed how easy it is to forget who you just spoke to when you start your selling campaign!



d) At your appointment professionalism is key. When you review your garments ensure all the hangers are the same with the hooks facing in the same direction. Respect your garments and coordinate the colours together so they are pleasing to the eye. Ensure each garment has a reference or a style number and place the swing ticket in the same position on each garment e.g. blouses – LHS on one cuff; trousers – LHS under waistband (but do not necessarily put the price on the ticket). Obviously, do not damage the garment when attaching the swing ticket to the garment, especially with a swift tag gun.



Some designers like to bring along their theme boards showing colour, silhouette, print etc. trends which is perfectly acceptable but try to keep it short and to the point. Sometimes potential buyers may want to keep samples and show their controllers or senior buyer. This is a chance you take; you run the risk of your sample being copied but also losing an opening if you don’t. It’s a personal decision. If you decide to let the sample stay then keep it to a specified period of time, say two days, and issue a delivery note there and then so you can keep tabs on your sample.



Remember to ask questions about your potential customer’s payment terms. Is there a settlement discount or a prompt payment discount? For larger accounts do they have their own delivery methods and carriers, in house labels, swing tickets, fabric testing reports? All these variables need to be costed in the price before confirmation of actual price is given by you.



If you see a potential opening with your client such as ”˜this is nice but the neckline is wrong’, don’t be precious. If the order is a viable quantity you can offer to resample. You need to get that opening with an account and who knows”¦.. from little acorns”¦..!



Prospective Retail Contacts



British Shops and Stores Association

Contact: John Dean, Chief Executive, Middleton House, 2 Main Road, Middleton Cheney, Banbury, Oxon OX17 2TN Tel 01295 712277, Fax 01295 711665,

Email This email address is being protected from spambots. You need JavaScript enabled to view it.
 Web www.british-shops.co.uk  



Fashion Profile

Contact: John Pearce, MD, Suite 3, Marlowe Court, Parkleys, Ham, Richmond, Surrey TW10 5LR Tel 020 8541 4460, Mobile 07789 656443, Fax 0208 255 3344

Email This email address is being protected from spambots. You need JavaScript enabled to view it.
 Web www.fashionprofile.com  



5. Maximising your potential



Once you are established, how do you ”˜GO FOR IT’. You need cost effective ways to secure more business and expand your client base. Again, access what is out there and never be afraid to ask for help and advice. Companies that can help you include: –



British Clothing Industry Association

There are six organisations under the umbrella of BCIA, each working on government initiatives and projects to encourage the Fashion Industry:



The British Fashion Council                                                                                         Textile Clothing Strategy Group

Industry Forum British Menswear Guild

International Apparel British Footwear



All the above are based at: 5 Portland Place, London W1B 1PW Tel 020 7636 5577



6. Promoting your collection



Advertising and promotion also aid in maximising your potential but the ultimate dream must be see your garments walking down the catwalk. Who is out there enabling you to show your collection?



British Fashion Council

To apply for a stand or catwalk at the London Designers Exhibition during London Fashion Week you must make an application to the British Fashion Council. Samples need to be submitted four months before the exhibition date. The Council asks for ”˜three total looks, a maximum of 6 samples’. Garments need to be actual production samples presented on clearly marked hangers. The garments are viewed on hangers, so it is important that you present your collection in a way that show it at its best and indicate which garments should be shown together. Portfolios and press books are not considered. Decisions are made by the Exhibition Advisory Committee which is comprised of senior press and buyers.



Princes Trust ”“ see above



Just remember that it is tough out there. If it was easy we would all be designing and selling our own collection. The adage of it’s 99% p perspiration and 1% inspiration is never truer than in our industry. Don’t be overly ambitious, plan and prepare, but most of all ENJOY. It is a fabulous industry to be in and remember nobody plans to fail but many fail to plan.