From our April 2003 Issue

Sew Biz CONSTANCE HALLINAN LAGAN If you’re in the business of sewing, or considering becoming a professional dressmaker, beware of some common pitfalls. Turn mistakes into learning experiences for a successful small business.

Too Much Diversity

How much is too much? Entrepreneurs think big by nature. Our plans are expansive. As soon as we jump one hurdle, we’re looking for the next. Sitting back on our laurels isn’t a common position for us to take. That’s why it’s so difficult to say “no” to new projects, ideas or customers--we’re so excited about the possibilities that we overlook the nitty-gritty and forget to carefully consider our options.

We’re constantly bombarded with the don’t-put-all-your-eggs-in-one-basket theory, making it difficult to stay focused on developing one skill, pattern or customer at a time. Diversification is our security blanket ... lifesaver...insurance policy. Should one specialty become obsolete, one trend lose its popularity or one customer defect, it’s vital to have other options.

However, bigger isn’t always better, and large manufacturing firms aren’t always the most cost­efficient. Up to a certain output level, production on a large scale ensures greater efficiency, but at some levels a smaller operation is better able to produce at a lower cost. Increased expansion and unbridled growth often result in costly problems that smaller businesses aren’t saddled with.

The solution? Balance. It’s important to have a variety of projects and customers to keep cash flowing. Establishing the right mix is crucial and generally requires a good deal of trial and error. Specializing in a particular market, such as “formal attire,” often provides a substantial client base. Even some sub-markets, such as “formal attire, bridal,” yield a large pool of potential customers. Conversely, some markets and sub-markets generally are just too narrow to explore initially--the risk of not being able to reach and sell to enough clients to make a profit is too great. These are best explored when cash flow is stable and you can absorb any potential costs.

Networking with industry insiders provides insight while increasing your chances of making wise diversification decisions. Joining professional associations such as the Professional Association of Custom Clothiers (see “Resource” at the end of this story) and subscribing to consumer and trade publications also are ideal networking venues.

Too Little Capitalization

How much is enough? Insufficient capitalization or funding is one of the main reasons so many businesses fail within the first few years. It’s imperative to make personal and business cost projections to determine how much money will be required to see your business through its early years.

Businesses that grow the fastest are those in which profits are re-invested for at least the first three years. Minimally, your goal should be to leave all profits in the business for at least one year. Begin your calculations by estimating how much money you’ll need to support your present lifestyle for one year. First compute your primary monthly expenses, such as housing, food and clothing, then add in your secondary expenses, such as healthcare, education, charitable contributions, entertainment, etc.

If you’re solely responsible for your family’s welfare, also include the costs for each family member. If you have support from a spouse or other sources, deduct this contribution. Multiply the total dollar amount by twelve. When you have this amount available to live on, you can safely reinvest your first year’s profits back into the business. If you’re able to do this for two or three years, all the better.

Next, estimate your business start-up costs and at least one year’s expenses. These include, but aren’t limited to, raw materials, equipment, office supplies, packaging materials, postage, telephone, insurance, salaries, employee benefits (if applicable), taxes, utilities, advertising, and legal and accounting fees. Anticipate “surprises” on both the home and business fronts, such as car repairs, tuition increases, broken equipment, inflation and deflation.

You’re bound to make some errors in estimating these costs. Adjust your projections frequently, correcting errors as soon as they become apparent. With experience, your projections will become more accurate and require fewer adjustments.

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