Amber Cameron knows the performance of her business is rather unusual.
"I was cash-flow positive in my first month and I have been ever since," Ms. Cameron says. But coming from her it doesn't sound like bragging. Instead, there is a quiet confidence behind the words of the Saskatchewan entrepreneur.
Ms. Cameron opened the Radiant Skin Clinic in Moose Jaw in March of last year. The clinic offers several treatments, ranging from chemical peels to hair removal to Botox. By the end of the first year, it had treated 300 clients; now its customers have topped the 1,000 mark.
Ms. Cameron says she's "always been in business of some sort. I don't think I've ever had what some people call a 'real job.'" She was raised on a grain farm, and her father taught her the value of entrepreneurship at an early age: "He always talked about what can you do in a job versus what you can do running your own business."
Ms. Cameron'a quick success was recognized when she was named the Young Entrepreneur of the Year at the 2011 Moose Jaw Business Excellence Awards.
While Radiant Skin is a success , Ms. Cameron knows all about the financial mistakes young entrepreneurs can make.
"One of the biggest lessons I've learned is that however much money you think you need, you need more than that. Undercapitalizing your business is a big issue."
Business consultant John Hughes agrees.
"Most young entrepreneurs underestimate the amount of money needed to establish a business. It's crucial to be properly capitalized."
Mr. Hughes is a partner in the private company services unit at Deloitte. He says many young entrepreneurs tend to be "terrific on ideas, but not so much when it comes to 'financial savvy.'" Mr. Hughes says the first key is starting with a strategy plan that includes what he calls an "actual budget." Mr. Hughes says part of that budget is "really thinking through what kind of upfront cash costs [an entrepreneur will]have."
According to Mr. Hughes, the next common money mistake young entrepreneurs often make is not understanding all the costs of running a business. "They tend to think of variable costs like product and fixed costs like loans and leases, but not infrastructure costs, like legal and accounting fees."
Mr. Hughes says businesses also need to monitor their budget regularly, checking how the revenue and expense figures compare to the budget, the implications of those differences, and whether the budget will have to be adjusted.
David Wilton says the best way to deal with those adjustments is to have a Plan B ahead of time. "It's always easier to anticipate a cash-flow crisis than respond when it happens."
Mr. Wilton is the director of small business at Scotiabank. He says often, the projections and assumptions in a young entrepreneur's business plan fail to materialize. But if the expected margins, expenses and revenues are stress-tested ahead of time for other possible outcomes, Mr. Wilton says the business owner will be more likely to deal with it properly – and quickly.
Mr. Hughes at Deloitte agrees that building contingencies into the business plan is crucial. He also lists another area often overlooked by young entrepreneurs: taxes.
"You have to set up the structure that is best for you from a tax standpoint. Is it a sole proprietorship, a partnership, or a corporation? They are all different when it comes to taxes, and the right choice will depend on the kind of business and the stage it's at," he says.
Mr. Hughes notes many small businesses find it makes sense after a year or two to shift their structure to a corporation, in which profit is taxed at a much lower rate than direct income.
To get to that point, new businesses need to successfully work on their long-term growth. Failing to balance long-term growth with short-term progress is another pitfall for young entrepreneurs, according to Steve Meston, senior vice-president of commercial banking at CIBC.
"If all you do is focus on day-to-day operations without any thought to longer-term goals, you could end up making poor decisions that will not support longer-term growth and sustainability," he says. "Expansion and growth objectives should be built into your business plan."
Ms. Cameron at Radiant Skin says another common money mistake made by young entrepreneurs has to do with the cost of marketing.
"Marketing is an investment. You need to carefully research it. Whether it's a newspaper, flyer service, whatever, [make sure the]ads are paying off. It's too easy to just write a cheque."
Ms. Cameron has decided to spend much of her marketing budget in an unconventional way. She has a referral program that pays customers $22.50 for every new customer they refer.
"Last month I paid out over $100 to some people, but I'm happy to do it – it's marketing money well spent."
Ms. Cameron's enthusiasm and creativity are obvious to anyone who meets her. Mr.Wilton at Scotiabank says the key is to marry that spark to the structure needed to make a business succeed.
"For many young entrepreneurs, there's a temptation to pursue the idea before developing a solid plan," he says.
"The challenge is to harness the enthusiasm; direct them to do the appropriate research to see if the business idea is viable. There can be a tendency to be overly optimistic.
"It's a characteristic of an entrepreneur. It makes them passionate about their business. It's an important attribute, but the risk is they leave themselves open to making some significant mistakes along the way."