What it is, how to measure it, and why now’s the perfect time to establish your financial sustainability strategy.
The concept of financial sustainability is simple, and if you’re a business leader or entrepreneur, it’s highly likely you already have it in your sights:
A business that accrues healthy levels of revenue, sees consistent return on investment, and is able to achieve a profit after expenses is typically defined as a financially sustainable company.
It means the business has a viable model and strong operations, and will usually have a good safety net should there be a shift in the market or economic downturn.
True, it might sound like low-hanging fruit that all businesses and leaders would prioritise, but achieving financial sustainability on a consistent level is both more challenging and less thought about than you may think.
So if you’re launching or growing your business, or simply want to ensure your venture thrives, here’s how to achieve financial sustainability.
Financial sustainability comes in two forms:
Both of these offer the same principles, and will look carefully at your business as a whole or product against similar factors: the market and economic landscape; target buyers and investment opportunities; production and vendor costs; competitors and potential pain points etc.
The central difference being that the sustainability of a business model is a deep-dive, and an ongoing examination as the venture grows and the market evolves. Whereas that of a specific project or a new product/service usually requires a spotlight view of the current state of play at the time of proposal, and launch.
It’s being financially sustainable in the long-term, and financially sustainable for the duration of a product or service’s lifecycle.
It might sound like a universal map all businesses are using, but the strength of your business doesn’t rely on it fitting into another leader’s strategy (more on this below) – it’s uniquely adaptive to your venture.
Financial sustainability hinges on a number of key factors, including:
Defining what ‘success’ looks like for your business in your market will ultimately pave the way to establish the metrics, and a means for you to measure financial sustainability over time. This includes measuring your revenue and loss alongside your business’ growth, and against the rate of inflation.
How easily your business is able to absorb risk is another important piece of the puzzle. It could be something comparatively minimal like loss of a vendor or exchange rate fluctuation, or something more significant such as a recession, a sudden increase in employee turnover, or even losing an investor – risk is an everyday reality for businesses, and no one is immune.
Having good levels of financial strength will mean you’re able to evolve your operations, and recoup any losses or setbacks at a good pace. And do so without interruption to your customers, shareholders or employees.
…lies in your financial sustainability strategy.
Sure, it might sound like yet another slide deck to put together for investors, but your financial sustainability strategy – and how you’ll make it a reality – will underpin your venture’s overall operations. And importantly, it’ll help protect your business’ longevity in the event of a setback.
Just like any other strategy (be it growth, marketing, ESG, and so on), defining objectives and KPIs with which to achieve them is crucial. These targets will keep your business on track, enable you to measure performance, and evolve aspects of your model and/or outputs if necessary.
Your strategy should also include a well-vetted risk register that’s continually updated. It’ll include any and all risks that your business could face – from financial, to operational, to reputational. Ensure yours is equipped with the scenario, the potential impact, and a means to resolve it.
One last thing: an often overlooked factor is establishing a standard for management. Your business’ leadership will steer its financial sustainability from the very top, undertaking vital decision-making, securing investment, establishing partnerships, setting the tone for teamwork and productivity, and so much more. Start at the top – and as you mean to go on for real success.
If you’re looking for an easy way to monitor your business finances, and build your revenue streams, we can help. Moneff provides access to a range of professional services, including business current accounts, merchant accounts, FX and international payments and more. Find out more about how we can help your venture today.