Top money mistakes made by young entrepreneurs

Have you been there?

Being young entrepreneur is attractive and exciting if you are smart and creative. It could be quite glamorous as well. But there are times when it looks as a daunting task.

What are the top money mistakes made by young entrepreneurs and how to avoid them? Amber Cameron, Young Entrepreneur of the Year at the 2011 Moose Jaw Business Excellence Awards shares her experience.

Firstly, who is she?

Ms. Cameron opened the Radiant Skin Clinic in Moose Jaw in March of last year treating 300 clients by the end of the first year. The clinic offers several treatments, ranging from chemical peels to hair removal to Botox. Now its customers have topped the 1,000 mark.

While Radiant Skin is a success, Ms. Cameron knows all about the financial mistakes young entrepreneurs can make. And her opinion is shared by a number of experts.

1. ‘However much money you think you need, you need more than that.’ Undercapitalizing your business is a big issue.” 

Business consultant John Hughes agrees and adds that many young entrepreneurs tend to be “terrific on ideas, but not so much when it comes to ‘financial savvy’... It’s crucial to be properly capitalized.”

Advice: Good starting point is developing a steady strategic plan which includes “actual budget” and “really thinking through what kind of upfront cash costs [an entrepreneur will] have.”

2. Understand all the costs of running a business. Mr. Hughes says, “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.”

Advice 1: Monitor your 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.

Advice 2: Have a Plan B ahead of time. It’s always easier to anticipate a cash-flow crisis than respond when it happens, says David Wilton, director of small business at Scotiabank.

3. 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,” Mr. Hughes says.

Advice: Think through your business plan: short- and long-term. “Expansion and growth objectives should be built into your business plan”, says Steve Meston, senior vice-president of commercial banking at CIBC.

4. Get your marketing costs right. Ms. Cameron at Radiant Skin says, “Marketing is an investment. You need to carefully research it... Make sure it is paying off. It’s too easy to just write a cheque.”

Advice: Be creative and find out what works for you. Social media is very popular but it is not the answer to every question. Think out of the box and give your customers what they need in a new unconventional way. For example, Ms. Cameron has a referral program and last month she paid out over $100 to some people. She says, “It’s marketing money well spent.”

Reference:

Cain, T. (2011) ‘Top money mistakes made by young entrepreneurs’’ [WWW]. Available from: http://www.theglobeandmail.com/report-on-business/small-business/sb-money/cash-flow/top-money-mistakes-made-by-young-entrepreneurs/article2195005/ (accessed on: 10.10.2011)