Introduction
Business and finance are essential parts of any community, but the financial and investment landscape can be confusing to people outside of these sectors. If you’re interested in learning more about how businesses and individuals invest in their communities, this primer on the business and finance of community development will help you get started. Learn how to find out what’s available through Federal and local programs as well as where to start when it comes to development planning.
Community development finance is a broad term encompassing the varied sources of funding that support stronger and more resilient communities around the country. Community Development staff at the Federal Reserve promote new and established sources of community development finance for low- and moderate-income (LMI) communities by working closely with financial institutions, community development organizations, nonprofits, foundations, research and policy centers, and government agencies.
Financing community development investments in LMI communities often requires a creative mix of public, private, and philanthropic resources. The Federal Reserve helps community development organizations access the technical and financial resources required to complete these often-complex deals. The Federal Reserve also uses its research and convening capabilities to explore new and emerging sources of capital to support community development finance. In addition, the Federal Reserve, as a regulator of the Community Reinvestment Act (CRA), seeks to educate banks and community stakeholders about how to partner to direct CRA-eligible loans and investments in a manner that is most impactful for the local community.
The Importance of Business and Financial Literacy
Financial literacy is the cognitive understanding of financial components and skills such as budgeting, investing, borrowing, taxation, and personal financial management. The absence of such skills is referred to as being financially illiterate.
According to the Financial Industry Regulatory Authority (FINRA), about 66% of the American population is considered financially illiterate.
Being financially literate allows an individual to be better prepared for specific financial roadblocks, which, in turn, decreases the chances of personal economic distress.
Achieving financial literacy is crucial in today’s society due to everyday facets of life, such as student loans, mortgages, credit cards, investments, and health insurance.
People often think that if they have a great idea to make their neighborhood better, all they need to do is start it. The problem is, running a business successfully requires a lot more than just an idea. It requires financial literacy, accounting know-how, marketing savvy, legal knowledge, and project management expertise. Without the knowledge or experience in any of these areas, your community development project may not be successful–and even if it is successful at first, you may find yourself without the skills to continue managing it as time goes by.
The good news is that there are many organizations out there that provide training programs for people with community development projects in mind.
Understanding the Terminology
In business, it is important to understand the meaning of words. The use of the word community can mean different things in different contexts. For example, in some cases, a community may refer to a town or city, while in other cases it may refer to a group of people with shared interests. In this post, we’ll be using the term community to refer specifically to neighborhoods with shared interests and resources.
Developing a Business Plan
A business plan is a written document that outlines all aspects of the organization’s management. It typically includes the organization’s mission statement, goals, objectives, financial information, marketing strategy, budget and anticipated outcomes. The benefits of creating a business plan are often cited as:
- it clarifies who your customers are
- it provides a basis for measuring success or failure over time.
- it forces you to think through your plans
- it helps you establish priorities
Sources of Funding
There are many sources of funding available for community development projects. The National Association for Community Economic Development (NACED) is a great place to start when looking for funding, as they provide resources on local, state, federal, international, and private sources. NACED also provides a directory of over 400 community economic development organizations that offer a variety of services.
In the U.S., there are also grant programs offered by the U.S Department of Commerce’s Economic Development Administration (EDA), which offers grants at various levels depending on where you live in the country-the Regional Innovation Cluster Initiative (RICI) provides grants to help small firms grow in underserved areas while the Innovation Network Program is designed to foster innovation in mid-sized cities.
Managing Cash Flow
Cash flow management is the process of understanding and optimizing the amount of money, cash and non-cash, moving into and out of a business. A positive cash flow is more money coming in than going out, and a negative cash flow is less money coming in than the business needs to cover outgoings
It is important to have a cash flow plan for your business because it will help you manage your finances. The cash flow should include the following: what money is coming in, what money is going out, how much does the money need to last through, and when will this whole process be complete? It’s always important to know where you are financially so that you can take action if necessary. For example, if you are running low on funds, then make a list of all expenses and see which ones can be cut or delayed until the project ends.
financial statements
It is important to have a financial statement that outlines the business plan. It is important to consider the following: cash flow, fixed assets, depreciation, capital expenditure and investments.
Here are some other considerations for your financial statement:
-Cash Flow Statement: This document should track all income sources and expenses for a set period of time. You can prepare this by working out how much money you will need each month or year based on what you know about your income from different sources. Your cash flow projection will also help you work out when you will need to take in new money from investors or loans.
Risk Management
Your business is also at risk for many reasons, such as changes in regulations. How do you protect yourself against these risks? One option would be to purchase a liability insurance policy that covers your company from any potential lawsuits. The downside of this type of protection is the premium cost; it can get expensive, so you need to weigh the pros and cons before making a decision.
