Financial terms: Liabilities

When was the last time you made a list of your LIABILITIES ❓

Liabilities are anything that your company owes someone else. While it’s great to have a lot of assets, it doesn’t mean anything if you end up having more liabilities. Keeping track of your liabilities is important for the financial health of your company and your cash flow, and ensuring you can pay back everything you owe!

In the third part of our series on financial terms for the fashion sector, we’re discussing common liabilities (outflows of cash) a business might have (which apply to all sectors):

• Rent and Utilities: If you rent a studio or retail space, you pay a set amount each month plus any utilities associated with the space (electricity, water, WiFi, etc.).

• Wages: If employees work at your studio or store, any of these wages fall under liabilities. Employee benefits also fall under this category.

• Accounts Payable: Any money that you owe to vendors, businesses, or individuals. In the fashion sector, this usually includes raw materials, supplies, and other manufacturing expenses for inventory.

• Loans or Credit: Any business loans or credit card debt owed by your company.

• Taxes and/or Fees: The taxes your business pays and any potential legal or accounting fees.

• Unearned Revenue: These are payments you have received from customers for inventory they will receive in the future. It is common for companies in the fashion sector to have when it comes to pre-ordering inventory.

The next posting in this series will focus on how assets and liabilities work together to form your working capital. 👀 You won’t want to miss it! Do you have a list of all your business’s liabilities? If not, your goal is to make a list (and bonus points if you add your assets to this list as well!).

Let us know when you complete this and how your assets compare to your liabilities!