Working in fashion may seem glamorous but in reality, it is a large and rapidly growing industry with constant changes in perception and preferences.
Accounting for the fashion industry is all about finances, budgets, and ensuring you get the tax right.
This industry needs business-minded professionals to conduct standard finance procedures, such as accounting, budgeting, and issuing debt.
There are various challenges to be addressed within the fashion industry and it is crucial that these are managed effectively to ensure proper running of your brand or fashion house.
Fashion is a tough business to be in at the best of times. Long seasonal cycles mean time is largely spent planning for the future.
Orders must be received ahead of the season, and the cost of samples, manufacturing and marketing must be accounted for early.
Alongside the usual cash flow issues that can come with these cycles, there are three major challenges facing our fashion industry clients:
- Brexit and the resulting import/export issues
- The lingering impact of Covid
- The rise of online retail and ensuring enough exposure for products
Williamson & Croft will ensure that you are aware of these particular arrangements, which goods are eligible, and of your responsibilities for the completion of form VAT 407. This must be retained as evidence of the export.
We already act for a number of fashion brands and recognise the importance of understanding the particular needs of this industry. We can assist with:
- Statutory Accounts
- Management Accounts
- Restructuring to ring-fence assets & protect the brand
- Tax Planning & Exit Preparation
- Financing growth
- Letters of credit and foreign exchange dealings including currency contracts
- Fraud detection and prevention
- Transfer pricing issues
- VAT advice
Foreign Exchange Currency
It won’t come as a surprise to learn that the fashion market, as one of the world’s most globalised industries, is highly exposed to currency volatility risk.
As the design, retail sales, and manufacture of clothing items often involve the use of foreign currencies and the sourcing of materials from a range of international markets, it is necessary for fashion brands to make payments in foreign currencies on a recurring basis.
The fashion industry is profoundly affected by shifts in currency exchange rates, owing to the complex nature of the global fashion supply chain.
Suppliers and labour are usually sourced from international markets, with textiles commonly ordered a season in advance.
Once sales have been made across a variety of markets, the various foreign revenues are often converted back to the brand’s primary currency.
These activities leave fashion brands vulnerable to swings in the currency markets, which can have a huge impact on their profits.
Our experienced team works alongside several fashion brands, helping them assess their foreign exchange risks, identify their requirements, and provide practical advice.
Our trusted partners can provide bespoke solutions that are designed to protect your profits by reducing currency costs and mitigating the risk posed by foreign currency fluctuations.
Ever-changing legislation and Brexit
After a long transition period, on 31 January 2020, the UK officially left the European Union.
However, over three years later, there are still many issues surrounding the complex divorce process from Britain’s biggest trading partner that are yet to be resolved.
Most fashion businesses that operate in Europe, including wholesalers, brands, agents, and retailers, would confirm that trading has become more challenging because of the increased costs and bureaucracy that have come into effect over the last three years.
Fashion exports and imports have also been hit hard by duties and customs charges since Brexit.
Williamson & Croft will be able to advise on options such as an EU VAT registration and how best to manage compliance.
For instance, you may be able to use one country as a shipment route and reduce overall compliance costs.
Moreover, we can check the customs duties consequences of importing goods into the UK and EU and identify ways to mitigate your costs.
Fluctuating material costs
The surge in raw materials’ costs is very real. The price of cotton has oscillated widely, and in 2021 it jumped by 45% year-on-year, while the price of cashmere rose by more than 30%.
Petroleum-based fabrics have also, to some extent, followed the fluctuations in oil barrel prices.
Many brands proactively anticipated the spike in raw materials’ costs by planning and ordering ahead, so as to be able to wait for the prices of natural and petroleum-derived fabrics to drop.
When working in the fashion industry, it is likely you will need to work frequently with lenders to obtain financing.
There are various types of finance which can give your business the boost it needs.
- Asset finance – this ensures that you will be able to access the assets you need without the burden of upfront costs or even ownership responsibilities.
- Trade finance – This provides funding directly to your supplier on your behalf, ensuring that you will receive the materials or finished goods that your project needs to deliver the project and boost your revenues.
- Invoice finance – With invoice discounting, you’ll be able to draw down capital from your raised invoices almost immediately. This would mainly apply to businesses that sell b2b.
- Merchant cash advance – With this, you’ll be able to apply for a lump sum that could help you purchase additional stock, pay an unexpected HMRC bill, or simply tide you over a sudden dip in business.
- Refinancing – This is an excellent way to raise capital without a loss of equity. Almost any of your existing assets can be bought from you by a finance partner, and you will then be able to either hire the equipment back or repurchase the equipment.
- Property finance – Whether you’re looking to permanently purchase or expand a fashion retail unit, warehouse, factory or even office space, there are a huge range of specialist lenders who operate within the property finance market.
- Outside investment – Equity investors are often keen to hear new business ideas, particularly in the potentially lucrative fashion world.
In the fashion industry, laws and regulations change all the time. It is vital that you are aware of any potential legal issues your business could face, as well as any government regulations you need to follow.
Common issues include liability and contractual problems, data protection and privacy, managing fraud and securing electronic transactions, intellectual property infringement, and products being sold by unauthorised sellers.
There are all issues faced by our clients in the fashion sector and it is important to be aware of them and to have the right team by your side to help combat them.
Why Williamson & Croft?
People are the biggest asset of our business, whether that is a client, colleague, or supplier.
We support, grow, and interact to nurture our relationships and ensure ours and your ambitious objectives are achieved.
We have proven experience within the fashion industry and have worked with several high-profile brands.
Contact us today for more information on how we can help the business side of your fashion brand run smoothly.