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Finance best practice: Securing funding for your retail venture

Five successful fashion independents discuss their different routes to finance, through which they’ve set up shop and expanded their businesses.

With consumer spending still constrained, accessing finance to grow a business can feel like an uphill struggle for a fashion independent. But there are options.

The debt route can be taken, with traditional lending from banks in the form of business loans and overdrafts; however, in the current climate these institutions will expect a watertight business plan.

Bobby Lane, partner at law firm Shelley Stock Hutter, says the perception that the banks won’t lend to small businesses is not entirely correct. “Often small businesses and independents are poorly prepared and unclear of what they are asking for. Before they explore any route towards finance they need to sit down and really work out what they need, what they need it for, and if what they are asking for is really viable.”

He adds: “The bank will want to see the past three years’ statutory accounts, your latest management accounts and a business plan that shows the next three years, a forecast of your profits, what the balance sheet will look like and, most importantly, a cash flow forecast so they know you won’t need more cash in six months’ time.”

Lane advises looking into the Government’s Enterprise Finance Guarantee scheme if you don’t have security, or, on the equity side, initiatives such as the Enterprise Investment Scheme, which helps raise money by offering a range of tax reliefs for investors that purchase shares in smaller higher-risk trading companies.

Alternatively, it might be a good idea to become a member of a trade body such as the British Independent Retailers Association (Bira), which has an internal lending service, Bira Bank. This can offer loans of up to £30,000 for working capital, and personal loans of up to £15,000, both of which have a simple application process, using forms that can be downloaded from the Bira website, with applications turned around in as little as a couple of days.

No matter which route fashion independents decide to take, Lane stresses the three Cs: cash, costs and control. In order to remain attractive for investment, he says, indies must maintain a healthy cash position while keeping costs under control.

Trunk Clothiers, London

Trunk Clothiers has made a name for itself as one of London’s go-to premium menswear independents since opening in 2010. The Chiltern Street business won the Walpole Brands of Tomorrow prize and scooped the Premium Independent Retailer of the Year title at the 2012 Drapers Awards. On June 15 last year, owner Mats Klingberg opened a 350 sq ft standalone accessories store, Trunk Labs, on the same street.

Mats Klingberg

Mats Klingberg

Klingberg says:

“The second store was self-funded. I’ve taken a low-cost approach to fitting it out, but with taste. You can get really carried away with builders and designers but I designed the store myself. I worked with a local vintage furniture retailer, Andrew Weaving of Century Design, who is without his store because Chiltern Firehouse hotel is about to open in its place in the street. So my store now acts as his showroom. The floor is concrete, which looks great, and I didn’t have to pay anything for it. Obviously you have to do certain things like the lights, paint and practical things like that, but the renovation cost was very low, less than £20,000.

“Keeping cash flowing in at the same speed it is flowing out is difficult, and the more you grow the more you keep buying.

I’ve built very good relationships with my suppliers and I spread deliveries, which is better for cash flow because you are not paying everything at the same time, and physically you can process the deliveries more easily.

“I think often small independents are doing this because they are passionate about retail and clothes, not because they love admin and finance. But if you ignore it you can get into trouble. I have a business background, having worked at American Express for years, so I monitor our cash position on an ongoing basis. It frustrates me that to get a business overdraft the bank requires personal security to the same amount. There are alternatives I haven’t looked at such as crowd funding, which could be interesting.”

Dapper M and Dapper W, Battle

Menswear independent Dapper M opened its first store in Battle, East Sussex, on August 31 last year, with a womenswear shop - Dapper W - following in the same town on December 21.

Dan Lake

Dan Lake

Co-owner Dan Lake explains how they were financed:

“I worked in sales for years but I hit 40 and wanted to try something different. I did speak to the bank and I spoke to a lot of people in the industry, but as I knew I would want to open up a second store quickly, I decided the best option was to finance the first shop myself. Dapper M cost about £25,000 to set up, but I knew it would work because there are no other menswear stores around here. I did my research by talking to other local businesses and men on the high street aged 18 to 50, as well as commuters on the train to London. The store has since been a real success - we turned over £20,000 in December when we were targeted at just £8,000, for example, and we decided to launch our womenswear store Dapper W off the back of that.

“I had half of the money for Dapper W but went to the bank for the rest. It cost £30,000 to set up in total, of which I invested £17,000 and the bank invested the rest. To gain that funding I had to write a really punchy business plan, in which we showed them what our ideas for the business were. For example, we created and organised a fashion shoot at the famous Battle Abbey, along with a video shoot. I think those kind of plans excited the bank because they could see we’re not just a retailer opening the doors and selling clothes off a rail.

“We also made sure we gave them very clear projections of the absolute minimum we intend to make, and based on
that minimum figure we will be able to pay the money back on time and efficiently. Our next step will be launching our
own label.”

Purple Menswear, Harpenden

Paul Monks

Paul Monks

Paul Monks was just 23 when he opened Purple Menswear in Harpenden at the height of the recession four years ago, and the business has since gone from strength to strength.

Last year the shop was named among Drapers’ Inspiring Independents for 2013 and shortlisted in the Best New Business category at the Drapers Independents Awards. In January, Monks was also named one of Drapers’ 30 under 30 rising stars to watch. Last year he expanded the business with a second sales floor.

He says: “When I set up shop with my partners Duncan and Andy Mitchie it was privately funded and cost around £100,000. [Duncan Mitchie has since died and his brother Andy, who also owns two-store Hertfordshire menswear independent Manhattan, assumed his percentage of the business.] Where businesses normally need to pay pro forma with brands, I was lucky enough to get 60-day terms with pretty much all of them, so the business could generate some money before I had to start paying anything back.

“Our investment in the second floor cost around £30,000 and we funded that ourselves and with the help of the bank. We worked out a business plan and tried to show what we would do at the end of year one, two and three, and every year we have exceeded or matched our targets. Andy has around 30 years’ experience and he knew not to set unrealistic targets.

“I’d like to build the business to the point where we can open another store, but without outside investment because then it isn’t really yours any more.”

Young Ideas, Ashbourne

Anne Wright

Anne Wright

Anne Wright, owner of Derbyshire independent Young Ideas - which was named both Womenswear and Independent Fashion Retailer of the Year at the Drapers Independents Awards last year - invested in a new site for the Ashbourne store last year. She purchased the freehold of a 17th-century coaching inn, opening a 2,500 sq ft shop within the premises at 10 St John Street.

She tells us how she funded this: “The new store occupies about 25% of the total building, which we later plan to develop to include a cafe and brasserie, two retail units, a gastro pub and boutique hotel. The initial investment was actually quite low because the building was in a poor state of repair, and we were able to fund that privately. The major investment was for refurbishment and renovation of the building. We did need investment for working capital to expand the business into menswear, which we started from autumn 13, and to take on extra staff to man the new larger store; one full-time and another part-time.

“We agreed an overdraft facility with the bank, which was quite a challenging process. We had to put together a really comprehensive business plan - it certainly wasn’t a slam dunk. You need a good financial presentation and summary, so we got help from an accountant to put that together.

“Day to day, we try to keep a tight handle on our finances. The two keys for me are planning your buying budget and managing phasing of your payments so all your invoices aren’t due at the same time. We only do forward order,
so this is really important for us. I’m always monitoring our daily and weekly sales to make sure we are on track. The other key variable is staffing - knowing when to juggle that with expected footfall and demand.”

Concept Clothing, Aberdeen

Premium independent Concept Clothing opened in The Academy Shopping Centre on Belmont Street in Aberdeen in 2005, and a series of investments have included taking the unit next door in 2009, launching a website in 2008 and then relaunching it in 2010. It won the title of Young Fashion Independent of the Year at last year’s Drapers Independents Awards.

Blair Daniel

Blair Daniel

Its manager/buyer Blair Daniel says:

“Our first unit is 950 sq ft and the second is 1,050 sq ft, with the latter costing around £110,000 when you factor in the stock, the shopfit and the rent per annum. We financed the opening ourselves off the back of a bumper year in 2009. Our website was also self-financed and cost around £8,000 when launched in 2008, and then a further £5,000 when we had a rejig in 2010. The website does well for us but it does not return a huge profit. For us it’s just more about having that online presence.

“We started off selling womenswear in our second store and initially it did well, but then we began to struggle to compete with the likes of River Island and Topshop, so we began selling men’s in that unit too. At first we stocked it with our more dressy and expensive brands, but we found we didn’t have the footfall, so now both are mixed, which has worked better. We’re now in talks with the centre to conjoin both stores [which are currently separated by a passageway].

“To keep cash flow healthy you have to be really smart with your buying. We focus on in-season product to ensure the customer always sees something fresh to lure them in, and the invoices are smaller, which allows you to pump more money into the bestsellers.”

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