Cashing in on a hot brand

(FSB Magazine) -- Quinn Thompson launched his women's fashion label, Saint Grace (saintgrace.com), with $1,000, one type of fabric, and a vision to change the fit and feel of the T-shirt. Over the past six years his luxurious vintage-inspired knitwear company has grown each season with new styles, new customers - and new debt.

Thompson, 37, who has started businesses since he was 10 years old, self-financed Saint Grace with small lines of credit and big sums on his charge card. "I'm old school," he says. "I didn't know how to get investors." Although he was steadily growing the Los Angeles-based brand and consistently shipping product, the 90 to 120 days in turnaround time from raw fabric purchase to end - customer payment created constant cash flow problems.

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Thompson applied for small-business loans but was repeatedly turned down. "Banks don't like people who don't own a home," he says. "The reality is that you come into different cash flow crunches, and your credit card may be your best friend." By 2005, Thompson carried $175,000 in debt on his cards and owed another $50,000 on a family loan. "There were some pretty dark times," he says.

Everything changed, seemingly overnight, when Jessica Simpson ("a hot property at the time," he notes) was spotted sporting a pair of Saint Grace pants. Suddenly "we were making that product as fast as we could," says Thompson.

By the end of 2005, Saint Grace was doing 50 percent of its business in those pants, and Thompson paid off all his debt. He was able to boost his salary from about $25,000 annually to more than $100,000. He also was able to buy his own home - a duplex condominium, part of which he rents out, earning additional revenue to help pay his mortgage and taxes, which run about $4,200 a month.

Last year Saint Grace, which has attracted additional celebrity fans including Angelina Jolie, Jessica Alba and Drew Barrymore, was carried in more than 500 boutiques nationwide and did $2.6 million in sales.

As the owner of a new, aggressively growing business, Thompson says he's primarily focused on investing in Saint Grace rather than socking money away in illiquid retirement accounts. ("This is my retirement," he says of Saint Grace. "It's easier to have more confidence when you're driving the ship than when someone else is in charge.")

So far Thompson has been able to cull about $26,000 in retirement savings, split between an IRA that resulted from a rolled-over 401(k) and a SEP IRA, to which he contributes $200 every month.

Thompson is in the process of selling a different clothing company he co-founded around the same time as Saint Grace, a denim brand called Reo Starr. The deal is expected to bring him stock in the new company and a consulting salary.

Looking ahead, Thompson's goal is to build his liquidity so that he has the flexibility to grow his business by launching new divisions or investing in new technology. He says that he's always able to pay his bills and his employees, but "there's not a whole lot left."

On a personal level, he'd also like to be able to accumulate more wealth to invest in additional income properties. Thompson has never worked with a planner. "I've kind of been winging it," he says. "I don't have any real direction beyond what my garment industry accountant tells me." He's concerned with how to balance his business's need for cash with his personal need to adequately fund retirement.

Smith Barney financial advisors Mark Bradburn, a vice president of wealth management, and his brother Jason Bradburn, a certified financial planner - the two work as a team within Smith Barney (smithbarney.com) - say that Thompson's first step should be to develop a strategy to build personal liquidity so that he can eventually fund investments such as rental property or new lines of business.

To get started, the Bradburns suggest that Thompson create a budget and savings plan. To do this, he first needs to determine how much he spends every month, both personally and at Saint Grace. "I never had a budget - ever," admits Thompson.

The Bradburns add that it's time to apply a more structured approach to the business's finances. "Almost all entrepreneurs rely on personal credit cards in the beginning," says Jason Bradburn. "Now the business is clearly growing. You can build liquidity, and you can get lines of credit from a bank." Bradburn explains that Thompson can also get loans based on the stock he receives from the sale of Reo Starr.

As far as retirement savings, Mark Bradburn commends Thompson on contributing to his SEP IRA every month ("it takes advantage of tax-deferred compounding"), but adds that he'd like to see more of a nest egg. Instead of going through with plans to buy more property and put a pool in his backyard, Bradburn advises, Thompson should prioritize building liquid investments and retirement accounts.

"Take a breath. Once the business takes off you can buy the block and put a pool in everyone's yard," says Bradburn. "But first we need to see more money in the bank so you don't feel so strapped."

Jason Bradburn agrees with Thompson that he has no current need for life insurance since he has no dependents, but adds that he should consider a living will to deal with any unforeseen end-of-life issues. Thompson, who frequently rides his two motorcycles and recently began amateur car racing in his Porsche, admits it's a good idea. Says Jason Bradburn: "We need to protect you from yourself."

Overall, Thompson embraces the Bradburns' recommendations. He says he has already started on a budget and is looking forward to reconfiguring his personal finances to be in sync with his business goals: growing Saint Grace to $10 million to $20 million in annual sales and expanding internationally. "In the past four or five years I've done what I've had to to survive," says Thompson. "Now I need to structure for the future."

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