3 Obstacles to Avoid When Starting an Accessory Business

This article will share with you with pitfalls to avoid when starting an accessory company.

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Lesson #1

I remember this day like it was yesterday. I finally secured an appointment with a major buyer who bought for the casinos. I drove out to meet with her in Las Vegas (I was in LA) and she loved our first collection. She told me how many units she was going to buy and which styles she wanted and expressed to me she wanted to have them for holiday selling. It was August at the time. I left there without having a purchase order but having a verbal order from her. As soon as I returned to the office my partner and I discussed the order and made the decision to order what she wanted so it would be ready for the holidays. Well we had to meet our minimums and I think our first order with the factory was around $10,000USD.

Well, you can probably guess what happened next. I kept on calling her for the hard copy of the purchase order and kept on getting excuse after excuse. What eventually happened is that we did not receive the order from her EVER and we had to sell those handbags to an off-price retailer.

Lesson #2

It is imperative that you make sure that you are charging enough for your product. I know the tendency is to think that if you do not charge as much money as you should and keep the prices low, you will be able to sell more. It is so very important that you are at least covering costs because once you set your prices, you can never really raise them. When costing your product you need to keep in mind that you need to cover transportation from the factory to your office, commission if applicable for the showrooms, duties if the product is made overseas and it is always good to add in another $1 or $2 to cover miscellaneous costs. I have heard that some accessory companies make only a 40% margin. We always aimed to have a 55% margin but it was not always possible. When working in this business you will need to become a strong negotiator.  If the factory returns to you with production prices which are outrageous you will need to negotiate those prices down. When your freight forwarder comes to you with fuel surcharge fees, it is in  your best interest to negotiate those prices down or at least keep them consistent so you are still covering your costs.

Lesson #3

There may come a time when you need extra money for a big project.  There are many companies called factors who help fashion companies when they are cash strapped.  A factor will come in and factor your receivables. In other words, they will give you a 80 % advance on an invoice that you have shipped if the customer has Net 30 terms.  When the customer pays their invoice 30 days later, the factor will give you the remaining 20% less their fees. 

A factor can be very useful to help with cash flow. There are also factors who handle purchase order financing which is the factor financing the cost of the purchase order.  Factors who do purchase order financing are somewhat rare, but they are around.  If you know your company has strong sales or you are in negotiations for a major sale, then I would urge you to look at a factoring company who handles purchase order financing right away. There is a lot of due diligence which goes into a company before they approved.  It is also very important to research this company heavily because they will essentially be your financial partner. 

Keeping these 3 lessons in mind which help you avoid common pitfalls that many emerging accessory designers make.  

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