Starting out, inventory is the largest overhead cost you face.
Starting a small clothing business typically requires a bankroll of up to $250,000, according to Entrepreneur.com. Don’t let that large amount scrap your couture store dreams. If you prep right and craft a strong business plan, you can launch your shop for less.
A new clothing store can cost between $50,000 and $250,000 to launch, according to Entrepreneur.com and LegalZoom.com. To keep costs low, determine how many square feet your store will need — 1,200 to 1,500 square feet is the average size — and scout out potential locations that fit your space requirements. How much does rent cost at these locations? Determine the best site and start estimating how much you’ll spend on rent, cost of goods sold and operating costs during your first three years. The more conservative you are, the less dough you need to get started.
New business owners run into trouble when they don’t estimate their expenses accurately, especially the cost of rent. A year’s worth of rent typically ranges between 5 percent and 6 percent of your store‘s total sales, according to Entrepreneur.com. If you expect your store to generate $300,000 in annual sales, consider setting aside between $15,000 and $18,000 to pay the rent.
Liability insurance, inventory, utility fees, computers, cash registers, clothing racks, stock shelves, price guns, office equipment and employee salaries are just some of the overhead costs you face starting out. Overhead costs account for 95 percent of your expenses, according to Forbes.com. Of that amount, 40 percent factors into salaries, utilities and rent, while the other 55 percent accounts for inventory, or cost of goods sold. What’s left — the remaining 5 percent — is your profit. That amount can be used to make principal payments on any outstanding loans borrowed to start the clothing store.
It’s tough to foresee unexpected costs in any industry. That’s why entrepreneurs are encouraged to create a business plan that helps account for the unaccountable. The business plan serves as a kind of strategy guide that not only outlines your overall store ideas, but also includes monthly and yearly financial estimates and projections based on your startup costs, overhead costs, rent expenses and your research of target market trends that could affect sales. These financial projections are a good way to measure your performance to determine if any changes need to be made as your business grows.