How to Calculate StartUp Costs
ColDesi has helped thousands of custom apparel businesses start up over the past 15 years, and many of our technicians and salespeople have been a part of their own shops as well. We have easily over 200 years of collective entrepreneurial efforts behind us! So we recognize the value of calculating your start up costs for both a new business and for adding equipment or technology to an existing shop.
Whether you’re starting a new custom t shirt shop, commercial embroidery or rhinestone – wear business, it is imperative that you have a good handle on how much it’s going to cost you as you prepare and when you finally open those doors.
Custom T Shirt Equipment Costs
Writing down how much a direct to garment printer costs is usually about all the planning some people do before they start their custom t-shirt business. That goes for whatever equipment is involved. Entrepreneurs will spend months sorting through the costs of an industrial embroidery machine or rhinestone transfer system, but devote little time for the rest of what it will take to keep those doors open. Take a look at this quick list of equipment you will need if you’re basing your business on direct to garment printing as an example:
- DTG Printer
- Commercial Heat Press (or 2)
- PreTreat Machine (or hand sprayer)
- PreTreatment Area (booth)
- Table(s) for the garment printer and for the heat press(es)
- Computer and Monitor (recommended configuration)
- Graphics software (is this included or extra?)
- External hard drive or online back up option
- UPS (Uninterruptible power supplies) with surge protection
- Desk, filing cabinet, etc.
- Telephone (whether it’s a business VOIP phone like 8×8 or your cell phone)
Is there anything on that list you hadn’t considered? Perhaps a business phone or tables for your equipment wasn’t on your list. Is your computer up to recommended specifications?
Inventory, Supplies and Legal
Are you going to stock “blanks”, like the ones from Tultex, or order them as needed? Stocking blank tees will cost you money and space, but will cut down on your turn-around time dramatically. What will your business do? Are there any other inventory items you’ll be keeping handy? These are only things you’re going to resell directly, not supplies.
Supply costs can be a significant cost in any business and you have to decide how you’re going to handle stocking them as well. For a direct to garment printing business, for example, having ink in stock is HIGHLY recommended. After all, if you run out of white ink or pretreatment during a job having a liter of ink shipped overnight is a big expense – and unnecessary if you plan properly. On the other hand, the only supply item you’ll need for your embroidery business that might break the bank if you overnight is rolls of backing. Either way, having proper supplies in stock will ultimately saves you a lot of money and should be a part of your start up plan.
Working with a vendor like Colman and Company and utilizing their Rewards Program can significantly impact your ongoing costs!
Legal isn’t normally a costly expense for a start up, but if you have extensive assets to protect you will at least want to consult an attorney about the best way to set up your company. Even if you’re comfortable with doing your own research and choosing between sole proprietor, limited liability partnership, corporation, etc. you should still set aside a few dollars for the paperwork.
Insurance is another often overlooked part of any business start up. Don’t forget to get quotes on the right kind of insurance for your business, even if it’s just adding the equipment to part of your home owner’s policy. A competent business insurance agent should be able to help you figure out the coverage you will need.
The least planned for part of the majority of custom apparel startups we talk to is Marketing. Many entrepreneurs get caught up in the creative side of their business; what great designs they can do, a terrific logo that people will buy, who will star in the movie they make about their incredible success, and never give a thought to how people are going to see all this wonderful work.
Word of mouth will only take you so far, if you’re lucky. Lucky means that you know, or know someone who knows, enough customers to keep you paying your rent. But if your plan is to have a real business that pays you a salary, maybe has an employee or two and grows year over year, you’re going to have to do some kind of marketing.
10% of Sales is the rule of thumb for marketing expenses. But that’s on an ongoing basis AFTER you get started. Your start up marketing expenses should include a website, an e-commerce web store if you’re going to sell online, business cards, flyers you can leave behind, signage for your window or local markets/events and SAMPLES.
If you don’t plan for marketing expenses, eventually that word of mouth business will run out! Download a Free Marketing Checklist here.
One of the most common reasons that small businesses fail within the first 6 months is because they are “undercapitalized”.
What does that mean? It means that those entrepreneurs didn’t have a good idea of what the business would cost them to run every month, every week or every day. It means that they started their business one month and didn’t have a plan for how they would pay their bills the next month. It means that they didn’t have the cash in the bank, or the “capital”, to wait for their business to reach breakeven and then give them a paycheck.
6 months of working capital should be listed as part of your start up costs! You may not need even ½ of that amount, but if you don’t have it you will be lucky if you make it to month #7.
Consider the following when you’re determining how much capital you’ll need:
- Scenario 1: No Business – let’s say it takes longer than expected to get up and running. Your equipment was delayed, or you started during a particularly slow summer. How many months could you go without ANY business?
- Scenario 2: Lots of Business – A large customer places a BIG order. How much will you need to buy the supplies, blank garments and other materials? How long will it take them to pay? (You may have to wait 30+ days to get paid)
- Scenario 3: Slow and Steady – the way most startups grow is one month at a time. How much do you think you’ll sell your first month? Second? How long will it take you to get to the point where you’re paying for your overhead out of profits? Until you’re at that point, you’re going to rely on your working capital!
Calculations and Planning
Obviously, this isn’t EVERYTHING our 200+ years of experience can share with you about starting your custom t shirt business.
We’ll share more with you here in our InSights section, show you examples of companies that are making it big in our InBusiness series and now even offer live coaching and training as part of our new InTouch Live Online Webinars. We’re committed to helping you succeed!
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