How to Start a Clothing Line Business
Are you always the first to know about the latest fashion trends? Do your friends come to you for fashion advice, and are you known for putting together head-turning, perfectly chic outfits? If so, you might have the makings of a fashion designer. Starting a clothing line and a fashion design business of your own can be an empowering move that lets you put your talents to work. Whether you have your sights set on getting your designs to the runway or want to create a line that you can sell to the public yourself, learn more about how starting your own business could start you on this exciting journey.
Clothing Line Business Overview
The fashion design industry is a large and varied industry that rapidly changes and evolves. It’s the creativity of fashion designers that generates the garments and accessories that support and sometimes influence fashion trends. Designers may specialize in different fashion types, including haute couture runway fashion or print-on-demand clothing like t-shirts and hoodies.
Designers may launch a clothing line of their own, releasing multiple complementary pieces that appeal to a single audience. Some designers partner with larger retailers, coming to agreements where the retailers release and sell the designer’s line. Other designers take a more independent route, designing, producing, and selling their own clothing. Thanks to technology and the ability to sell clothing online directly to consumers, designers no longer need to rely on an agreement with retailers. Today, designers hold more power in their businesses and are able to sell their designs themselves, retaining not only creative control but also building their own design and retail businesses.
According to IBIS World, in 2019, the fashion designer industry brought in $2 billion in revenue. There were 23,974 businesses in operation, and they employed 31,263 people. IBIS World predicts that the industry will continue to grow from 2019 to 2024. That growth will be driven by the fact that fashion is becoming increasingly accessible, resulting in increased demand for new products and styles. An increase in disposable income levels leads to consumers seeking out apparel that makes a status statement. Designers collaborating with mass retailers also offer an economic boost to the industry, and if these trends continue, the fashion industry will continue to thrive.
Many trends are shaping the rapidly-evolving fashion design industry. According to CB Insights, one major trend is an increased demand for sustainability in design and garment production. Socially conscious consumers, especially millennials, are looking to designers and brands to use sustainable materials and invest in ethical labor and transparent manufacturing practices. These shoppers are more likely to purchase products made with materials like vegan leather and organic cotton.
Brandwatch reports that the movement toward revival pieces is likely to continue. Pieces that evoke nostalgia have become more popular, and brands and even the entertainment industry are focusing on the value of nostalgia to evoke powerful emotions and buying responses in customers.
Technology is also certain to continue shaping the clothing line and fashion design industry. Technology is nearly everywhere in this industry. We’re likely to continue seeing pieces that embody technology, like in the emergence of digital fashion, where buyers can download digital garments that are never available for sale in real life. Technology will also continue to influence fashion design, with more programs and tools available to designers. Designers must also keep up with the evolving world of social media and digital marketing. Influencers have gained tremendous popularity over the last few years, and social media marketing will probably continue to evolve.
Who is the target market for your clothing line?
Fashion design and clothing line businesses will have different target markets depending on their business model and brands. Most businesses will define their target markets by age, demographic, style, and income. Some businesses may offer only luxury products and styles, while others may focus on designing products for your typical consumer. A business’ niche, like swimwear, dress clothes, or sportswear, can also help to define its target market.
Skills, experience, and education useful in running a clothing line and fashion design business
Starting a clothing line or design business doesn’t require a business degree, but certain skills and experiences can increase the business’s chances of success.
Design and sewing experience. The more experience a business owner has in design and sewing basics, the better. While designers can hire companies to produce their products, sewing and design knowledge will help when producing samples.
Knowledge of fashion trends. Knowledge of fashion trends can benefit a designer in many ways. A designer can ensure that their lines are in keeping with current trends, but they can also use those trends to help generate new and different ideas and styles. Not being able to forcast trends correctly can lead to purchasing materials that won’t sell.
An eye for detail. Designers rely on attention to detail in creating designs and selecting materials, controlling the quality of their products, and monitoring sales and inventory for their businesses.
Creativity and originality. Often, highly creative and original ideas that push the envelope are some of the most successful. Designers who can rely on their natural creativity may be able to surprise and delight consumers, launching their brands in the process.
Checklist for Starting a Clothing Business
Starting a clothing business can be an incredibly rewarding experience, but it’s important to make sure you’re prepared for the challenges ahead. Use this checklist to help get your business off on the right foot.
Step 1: Write your Business plan
After coming up with the idea, the next step in starting your business should be to write a clothing line business plan. Not only will a bank require you to have a business plan, but multiple studies have shown that a business plan helps increase the odds of starting a successful business.
Related: How to write a business plan
Step 2: Form a Business Entity
A business entity refers to how a business is legally organized to operate. There are four primary business entities to choose from, which include the sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). Each type of entity has its own pros and cons, such as liability exposure, costs, and administrative requirements.
When deciding on which business entity is best for a clothing business, it normally comes down to the sole proprietorship and Limited Liability Company.
A partnership opens the owners up to unnecessary personal liability because if a partner does something to get the business sued, or runs off with cash from the business, the other partners are personally liable to repay. The corporation can be a good choice because it separates the business assets from the owner’s assets. If the corporation is sued or certain business debts can’t be paid back, the owners aren’t personally responsible to repay them. The downside to the corporation is that it is more complicated than all the other entities and requires more administration than the LLC. If you plan on raising a lot of investment though, the corporation is usually the better choice.
That leaves the sole proprietorship and LLC.
The sole proprietorship is the least expensive and easiest entity to start which is appealing. The downside is the owner is personally liable should anything happen to the business, which is an important consideration. The LLC offers the ability to operate as a sole proprietorship with the liability protection of a corporation. Depending on the state, the cost to form an LLC runs from $40 – $500, which is pretty inexpensive for protecting the owners from business-related lawsuits and certain debts.
Related: 3 steps to forming your LLC
Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.
Some popular LLC formation services include:
IncFile - $0 plus state fees & free registered agent for 1 year!
IncAuthority - $0 plus state fees & free registered agent the first year!
ZenBusiness - $49 plus state fees & free registered agent for 1 year!
Step 3: Name the Business
Finding the perfect name for a business can be challenging. Not only does the name have to resonate with your customers, but it also has to be available to use.
You may also consider getting a trademark to protect your brand.
Step 4: Select your Location
A smaller business can operate out of a spare room in a home, but larger design businesses will need rental space or even a storefront. Rental costs will depend on the size and location of the property. Properties in high-traffic retail areas carry higher costs, but they can deliver walk-in traffic and help to build public awareness of the business. Thanks to the availability of sites like Etsy and Poshmark, it’s possible for businesses to operate without a storefront at all, potentially saving on rent costs.
Related: Choosing a business location
Step 5: Apply for Business Licenses and Permits
There are no special clothing line business licenses, but there are some general local, state, and federal business registrations which may include a sales tax permit, Employer Identification Number (EIN), and Occupancy Permit.
Step 6: Contact Clothing Manufacturers
You may start out creating your items initially by hand, but that is sustainable for only so long. Whether you outsource to local sewers or work with a large clothing manufacturer overseas, choosing the right vendor is critical to your business’s growth.
When researching vendors be sure to not only focus on price but how the manufacturing process works like setup costs, minimum order quantity, turnaround time, pattern grading, whether they offer drop shipping, etc. Turnaround time is critical to know for budgeting purposes. If you are ordering apparel overseas and it takes weeks or even months to reach your shop, your money will be tied up in the inventory until it can be sold.
Once the list has been narrowed down, you can test their quality by giving them your sketches.
Step 7: Find Financing
Coming up with a good business idea and having the skills to run it are one thing, but getting the funding to start a clothing line is another. Funding to start a clothing line business can be difficult. To get a loan, the borrower(s) will need to have good credit and be able to personally invest 15-25% towards the total start-up costs.
A concept to be aware of with a clothing business is seasonality. Apparel is typically in highest demand during the holidays, particular seasons (spring, summer, fall, and winter depending on your niche), back to school, etc. During the slower sales periods, most clothing businesses are building up inventory, in anticipation of upcoming sales. Your business may need a line of credit to pay for inventory and wages to build up sufficient stock to meet the seasonal demand.
Adding to the stress of cash management, many clothing manufacturers provide credit to retailers, which allows the retailer to pay in 30 to 45 days. Some newer brands may start off selling on consignment, which means the manufacturer won’t be paid until it sells in the store. Ensuring the business has enough cash to acquire inventory and pay the bills until the retailer pays for the product they purchase puts a lot of financial pressure on a clothing business.
Step 8: Open a Business Bank Account
Keeping your business and personal finances in separate business bank and credit card accounts makes it easier to track the business’s income and expenses.
Step 9: Get your Marketing Plan in Place
The fashion industry is highly competitive and captive to trends that can quickly change, so designers need to find new and creative ways of making their mark in the industry. Rather than taking a broad approach, focusing on a niche can allow you to build a brand with a cohesive, unique feel that can attract customers.
Fashion businesses need to market continually, and brand development is particularly important in this industry. A fashion business needs to invest in marketing that accurately represents its brand and reaches its target audience. There are nearly countless ways to market a fashion business, but some of the most popular include social media platforms like Instagram, Pinterest, and Facebook and paid online advertising.
Step 10: Get Insurance
A fashion business needs several types of insurance for full coverage:
– General liability insurance protects the business if customers are ever injured while on the business’ property or because of the business’ products. This type of insurance can cover expenses like legal fees and medical bills.
– Commercial property insurance protects the business if its supplies and inventory are ever damaged or destroyed during an event like a fire.
– Worker’s compensation insurance helps to cover expenses like lost wages and medical bills if an employee is ever injured while at work.
The cost of these insurance policies will depend on factors like the business’s location and the value of its equipment and inventory. To get the most accurate idea of what to budget for insurance, it’s best to request quotes from multiple providers. When comparing the quotes, don’t just base decisions off of the different policy costs. It’s important to look at how other important factors, like coverage limits, exclusions, and deductibles, compare, too.
Step 11: Hire Employees
As a clothing brand grows, it may be necessary to bring on additional staff.
Once your business is off the ground, you may be able to entice college students to intern for your company. This is a great idea to get fresh ideas for not a lot of cost.
Unless you have the equipment in place, the production of clothing is time-intensive. Having detailed-oriented employees with strong sewing and tailoring skills is essential to consistently making a sellable product.
In addition to the cost of employee salaries, a business will also need to budget for other expenses, like paid time off, health insurance contributions, and worker’s comp insurance.
Related: Hiring your first employee
Step 12: Set up an Accounting System
Setting up an accounting system for your clothing line is critical to the long-term success of your business.
Staying on top of taxes not only keeps the business out of trouble with the government but the numbers can be used to track and monitor trends and cash flow in the business and maximize profits.
The thought of accounting can be intimidating for a lot of new entrepreneurs. There are a number of ways of handling bookkeeping, from DIY to hiring a bookkeeper. These include:
- Pen and paper - Low expense, but difficult to track.
- Spreadsheet - Low expense, but easy to make errors.
- Accounting software - Medium expense, but owner typically inputs expenses. Some great accounting software programs include Freshbooks or Wave Accounting.
- Hire a bookkeeper - Higher expense, though very affordable at $100-$200 per month in most cases. A dedicated bookkeeper will probably save money because, in addition to handling all of the bookkeeping (so you can focus on the business), they also provide personalized tax advice and ensure the business is in compliance.
Find bookkeepers in your local area or use a service like 800Accountant.
How much does it cost to start a clothing business?
How much does it cost to start a clothing business
Clothing lines and fashion designer businesses can be started out of the home for a minimal investment in equipment and supplies. You can start a smaller fashion business for around $5,000, while a larger business can cost $50,000 or more to start.
It’s important to note that while you can start off with equipment like sewing machines purchased from big box stores, they aren’t designed to be used over long periods of time. Eventually, commercial machines will be needed to handle the abuse.
Common startup costs for a clothing label or fashion designer business include:
– Equipment – such as sewing machines, screen printer, embroidery machine, etc.
– Supplies – such as scissors, thread, needles, etc.
– Inventory of fabrics and materials
How profitable is a clothing business?
It’s difficult to predict a fashion business’s potential outcome because these businesses vary so greatly in size and success. Glassdoor reports that fashion designers earn an average base salary of $60,865 per year, though salaries can range from $40,000 to $86,000. Income will depend on how the business is run, its specialty, and the overall success of the designer. According to Forbes, a 29-year-old fashion designer with a massively successful business earned $1 million in revenue. While his success isn’t typical, it does demonstrate the variations that can occur within this industry.
Are there grants to start a clothing business?
It’s extremely rare to find a grant to start a clothing business. If you search for business grants, you will come across a lot of scams and misinformation. Occasionally an organization will offer grants to start a business, however, be skeptical and don’t provide any sensitive personal information or pay money to get more information.
Legitimate federal grants can be found at Grants.gov and you can check on your state’s economic development office to see if they have any grants available.
What is the NAICS code for a clothing business?
The NAICS code for a clothing business is 311811.
The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.
It can help build a network of professionals within the industry who can guide you as you develop your own clothing line. Professionals who are well-versed in the fashion industry can help you navigate milestones and challenges like your first fashion show or your first product photoshoot. Finding a mentor to guide you through the various stages of building your brand and business can make the process go more smoothly and potentially save you from some mistakes. This can also be a confidence booster.