Value-based Financial Strategies For Sustainable Growth
As competition continues to accelerate in the global markets, entrepreneurs want to take their companies to new heights. However, a business that grows too quickly might find it arduous to fund that growth. But, slow growth can lead to stagnation. So, how does one find an optimal growth rate?
A few value-based financial strategies can come in handy for business expansion. It can enable business owners to route for sustainable growth – the maximum growth rate a company can sustain without being dependent on debt. And to achieve this, you must maintain a stable capital structure to eliminate the need for new equity.
Re-evaluate the business costs and maintain a target dividend payout. That way, your only source of additional capital will be retained earnings, sales, and assets, helping you achieve sustainable growth. Further, build your financial strategies around market conditions and consumer trends instead of profit maximization. A customer-centric approach goes a long way in ensuring business success. If you are not familiar with this domain, keep reading.
This article will give an insight into how business owners can use value-based financial strategies to achieve sustainable growth.
Revise Investment Portfolio
A significant part of sustainable growth is about being aware of your social surroundings and investing responsibly. It means companies should invest in line with their principles, goals, and objectives. For example, let’s say you want to promote healthy living among people. However, will your investments in tobacco and chemical companies contradict this goal? Before this becomes a topic of debate, revise your investment portfolio, and develop a strategy that produces a sustainable effect and higher returns.
Remember, portfolio re-evaluation requires expertise and knowledge. Hence, ensure you have experts on board; if not, learn the ropes yourself. You can find credible finance short courses online that focus on sustainable investments. It would familiarize you with different strategies with the same end goal – maximize returns while fostering long-term value.
In addition, it would allow investors to make more thorough evaluations by incorporating environmental and corporate governance aspects into this process. Investors will ensure the business gets evaluated fairly by analyzing more than just the bottom line.
Manage Cash Flows Smartly
Most people believe business profitability has nothing to do with cash flow management. It might be accurate, but managing cash flow is crucial for sustainable growth. Heaps of cash going out of the business, with little coming in, can lead to a liquidity crisis. It reflects the company doesn’t have sufficient assets to cover its current liabilities, impacting short and long-term growth. Therefore, keep an eye on inflows and outflows. Also, ensure existing assets are liquid and sufficient enough.
Further, draft solid payment terms with customers to eliminate the chances of late payments and negotiate with vendors for extensions. It will give you enough margin to cover payables with receivables. Most importantly, avoid doing business with suppliers indulging in unethical practices. They might be exploiting workers, engaging in child labor, or using chemicals in their production process. After all, you don’t want your name associated with such vendors when on a mission to achieve sustainable growth.
Create Price Floor & Ceiling
Every entrepreneur kickstarts a venture to provide a solution for an existing problem through their business model. Over time, that goal shifts to profit maximization. There is nothing wrong with wanting and achieving more, but it shouldn’t be at the cost of consumer exploitation.
Let’s say you have a monopoly in the market; your business is electricity’s sole producer and seller. Using that as an advantage, you charge consumers $100 per unit, whereas it costs you $15. Isn’t that sheer exploitation? Such strategies contradict sustainable growth and consumer welfare. Therefore, consider creating a price floor and ceiling. The price floor will be the absolute minimum amount of profits you need to stay in business. It means you can’t lower your price below this,
Similarly, a price ceiling could be the maximum price you can charge customers. You must align this with your sustainable growth rate. It will ensure you aren’t over or undercharging the customers. And above all, setting these brackets will allow your revenue to grow without new financing or exhausting existing cash flows.
Re-Evaluate Business Costs
Often, high business costs become an obstacle when it comes to sustainable growth. Truthfully, you can drive efficiency by recycling and reducing wastage to achieve sustainable growth. Lately, Lost sheep Coffee introduced compostable Nespresso capsules using waste from the paper industry. Perhaps, you can think of something similar within your industry. Depending on your product or service offerings, reduce the packaging, decreasing production costs.
Moreover, make a few changes in office premises. You can install energy-efficient lighting to reduce electricity costs. Likewise, opt for refurbishing instead of renovation to reduce overhead expenses. It will reduce the carbon footprint and business costs, allowing you to enjoy higher profits. Besides this, it enables customers to play their part in supporting sustainability. For example, you can add an option to plant a tree at the checkout counter. It would show customers how they can make a positive impact.
Invest in Green Energy
Every entrepreneur talks about investing in new assets such as plants, equipment, and machinery to boost production capacity. But has anyone thought of the environmental impact? Besides energy consumption, the waste produced by machines is damaging the environment. Investing in green energy could be a viable financial strategy for your mission to achieve sustainable growth. You can record it as a non-current asset in the financial statements.
Now the question is how to invest in green energy. The easiest way could be to purchase Invesco’s exchange-traded funds (ETFs) and contribute to the green energy sector. This company engages in the advancement of cleaner energy and conservation. Another way to invest in green energy is by purchasing hydroelectric power plants or solar systems. It will allow your business to utilize green energy instead of relying on non-renewable energy.
Achieving sustainable growth is all about identifying and articulating value-based financial strategies. Entrepreneurs must make amendments to recognize their vulnerabilities and strengths. Likewise, explore opportunities to make the company more sustainable – adopt green energy, create price ceilings, and reassess business costs. Most importantly, you must realign your investment strategies to support sustainable businesses while generating an income stream.