For all entrepreneurs, in both nonprofit and for-profit businesses, solid financial management is essential to ensure the success, stability and long-term growth of their ventures. While their mission, vision and goals are inspiring and visionary, at the end of the day an entrepreneur needs to demonstrate their capacity to build a financially sustainable business.
In our Caravanserai Project Biz Training Programs, one of our priorities for the hundreds of entrepreneurs and small business owners for whom we support and provide funding is to ensure that they adopt sound financial best practices. Out of the long list of crucial aspects an entrepreneur should keep in mind when it comes to their business financial management, here are the top 5 that we suggest you start with:
Make a detailed budget
Create a budget that reflects all the income and expenses of your business. This will allow you to have a clear picture of your finances so that you can make informed decisions. Prioritize your expenses and make sure you allocate enough funds to cover essential overhead operating expenses and incidentals.
For instance, Caravanserai Project’s budget entails collecting all income and expense records, including donations, grants, and program costs. We create categories such as donations, grants, program expenses, and administrative costs to organize our finances. To maintain financial stability, we regularly track actual expenses against the budget and make adjustments as necessary. This process enables us to stay on top of our finances, make well-informed decisions, and continue supporting underserved entrepreneurs efficiently.
Control your cash flow
Keep a close track of your cash inflows and outflows. Make sure you have enough liquidity to cover your daily expenses and keep a reserve fund for emergencies. Negotiating favorable payment terms with suppliers and collecting timely payments from your clients can help maintain a healthy cash flow.
At Caravanserai Project, managing cash flow is not only crucial, but a high priority as well. By tracking inflows and outflows, ensuring liquidity for daily expenses, maintaining a reserve fund, negotiating favorable payment terms, and collecting timely payments, the organization can maintain financial stability and support its mission effectively.
Minimize your debts and optimize your loans
Avoid accumulating unnecessary debts and, to the extent possible, prioritize the use of your own capital. If you need financing, research the different loan options and choose those with favorable interest rates and conditions. Make sure you fully understand the terms and obligations before signing any contract.
For example: Silvia, an entrepreneur and Caravanserai Project Biz Training program participant, started her own child care business. By minimizing her debts and optimizing loans, she used her personal savings to invest in equipment and create a nurturing environment. Silvia researched loan options, found a suitable program, and took care to fully understand the terms before signing. The loan supported her business expansion, enabling her to provide quality care and grow her venture.
Carry out a cost and price analysis
Identify and control your operating costs to ensure that your prices are competitive and profitable. Periodically evaluate your expenses and look for ways to reduce them without compromising the quality of your products or services. Analyze the market and adjust your prices accordingly to ensure adequate profitability. Understanding the value of conducting cost and pricing analysis for your business is a game changer.
Take Juan, for example. He joined our Biz Readiness Training Program for Spanish-speaking entrepreneurs to build a solid pathway to growth for his restaurant business in the Inland Empire region of California. He understood the importance of identifying and controlling operating costs to maintain competitive and profitable prices. Juan regularly evaluates his expenses, looking for ways to reduce them without compromising quality. One of the things he learned in our program was that by analyzing the market, he is able to adjust his prices accordingly to ensure profitability while remaining competitive. This financial discipline and mindset gained through the Caravanserai Project programs helped Juan sustain his business and meet the demands of his clients.
Seek financial advice
Consider seeking the support of financial experts to advise you in making important decisions. An accountant or financial advisor can provide specific guidance for your business and help you streamline your financial operations. Entrepreneurs, whether for-profit or nonprofit, should never stop learning from others for innovating the way they do business and seeking new tools to better their strategies.
Our team is constantly educating ourselves about the latest tools and approaches to improve our work and the infrastructure of our organization. As part of this ongoing process, Caravanserai Project has recently decided to create a Finance Advisory Committee made of a couple of our Board Members and independent experts that acts like a sounding board for the organization. They meet on a regular basis, review and provide input and feedback on our financials and financial strategies and, equally important, help us stay focused and make informed decisions.
Apply these tips and adapt your financial strategies according to the needs and particularities of your business. Remember that having a solid financial foundation is essential for the growth and sustainability of your venture. It is not and it should never be just a temporary focus for entrepreneurs. Solid, clear, and up-to-date financials are like an MRI: it says a lot about the entrepreneur and their business. After all, no money, no mission.
Adriana Ruvalcaba is Director of Finance and Operations at Caravanserai Project. Among her responsibilities, Adriana is overseeing the distribution of over $1,5M do small business entrepreneurs graduating from our programs but also working with them to better manage their finances.