Business planning is critical when starting a new company. When Stephanie Orma launched She’s So Creative in January 2008, she had two choices. She could have either applied for a bank loan and thrown herself into her new greeting card business full time or finance her company by continuing to work on the side as a freelance graphic designer and put every extra dollar into her startup.
Orma, 33, admits it was a tough choice. But she ultimately decided to move slowly and get her business off the ground without a bank loan. “She’s So Creative is my dream,” she says of her company, which has received national attention for its hip, humorous designs. “The thought of a bank loan was overwhelming and scary.”
If her greeting cards didn’t sell, not only would she be out of business, she’d also owe the bank a lot of money. She didn’t think she could handle that kind of stress. “It was important to me to feel comfortable every step of the way,” she says.
For entrepreneur's in Orma's position, comprehensive business planning can mean the difference between success and failure. Business credit expert John W. Collins, author of The Finance Formula, thinks Orma could have perhaps been a little less cautious: “Does she want to do this as a hobby, or does she want to treat this as a business? Sometimes, when you try to walk that fine line, things don’t grow as they should.”
Two and half years later, Orma is finally ready to jump in with both feet. Her cards have proven wildly successfully and are currently available in more than 100 retail locations across the country. She has just expanded her product line to include notebooks, napkins, and apparel, including T-shirts and aprons emblazoned with her original drawings.
After initial success, is a bank loan next on the agenda? Orma still isn’t sure, but she has worked hard to build up her business credit rating, so if and when she decides to apply for a loan, she’ll be in a good position to get one.
First, she has concentrated on managing her cash flow in a responsible manner. This is vital, says credit expert Marco Carbajo, author of Eight Steps to Ultimate Business Credit, because when you apply for a loan or line of credit, lenders look closely at cash flow to determine whether or not your business can handle any extra debt or expenses.
Orma has also kept very good financial records for her business, clearly outlining her company’s past performance and present financial health, as well as realistic goals for the future. Her weekly and monthly business planning outlines specific objectives, such as how many new buyers to contact or which trade shows to target.
“Banks are scrutinizing financial statements more closely than ever,” says credit expert Collins. “If you’re able to show lenders that you have been rigorous about setting financial goals and that you’re actually hitting those goals, they’ll feel much more comfortable about your business.”
Orma had decided not to put a lot of money into her business, which is based in Tiburon, California, unless she knew for certain the money was there. For example, if she had a big freelance design project coming one month from a corporate client, she figured it was OK to invest more in She’s So Creative, preordering materials or purchasing a new digital printer.
She is also careful about how she uses her business credit card. She pays down her balance each month and, if she approaches her limit, she’ll wait until the next month to buy what she needs. “The last thing I want is a negative credit score hurting my business,” she says.
Still, with more than 100 retail customers, managing cash flow can be tricky. For new customers, Orma has set a minimum order and insists they pay right away, usually by credit card. For repeat customers, she offers 30-day payment terms. If a customer is late with a payment, Orma sends a gentle reminder. “My style is persistent but friendly when it comes to collections,” she says. “Thankfully, I’ve never had a case where I didn’t get paid.”
But it never hurts to be more proactive when it comes to getting paid, advises Collins. Because Orma deals with so many customers, he recommends using a firm like Dun & Bradstreet to pull the credit reports on her largest clients. “If an order is more than, say, $1,000, she should run a report on that customer,” he says.
Another step she can take is to hire a collections company. Collins says many business owners don’t have the time, desire, or even the personality to go chasing after unpaid invoices. For a minimum amount of money, says Collins, a collections company will work with a set number of accounts. If clients pay on time, the collections firm receives no commission. But if unpaid invoices extend beyond a certain period, the collections company will take a certain percentage of the invoice in exchange for retrieving the funds.
On the vendor side of the equation, Orma always tries to negotiate better terms for herself. She constantly needs to purchase paper and packaging supplies for her business and typically has to pay vendors upfront. Now that she’s been in business for a couple of years, she’s been able to convince one supplier to extend 10-day payment terms. “I always try to see if there’s wiggle room, just for the sake of cash flow,” she says.
Another smart move: She goes into her bank personally every week to deposit checks. She could simply use the ATM to do her checking and never set foot in her branch. But her regular appearances over the past two years have helped her develop a friendly relationship with the people in her bank. She knows them and they know her. So when it comes time to take out a loan, the bank will be more disposed to approve it, says Collins. “The number-one thing lenders want to do is mitigate risk when making loans. Part of that is dealing with people they already have a relationship with.”
Finally, Orma has courted publicity. This not only raises her profile, it makes her a more attractive loan candidate. She’s So Creative has been written up in numerous publications and websites, including Time Out New York, Daily Candy and 7X7 magazine. Bankers love these kinds of positive press clippings, say experts, because they add an extra layer of credibility.
“Getting a loan comes down to viability and business image,” Collins says. “These are things that She’s So Creative really seems to have going for it. That’s just one more reason why Ms. Orma needs to move the business full steam ahead.”
Based on Orma's clear understanding of what it takes to run a profitable company, it is clear that She's So Creative's success was due in no small part to meticulous business planning.