One of the four elements of a sellable business is sustainability. A simple way for small business owners to think about sustainability is: sustainability centers on the transferability of relationships and the ability for you to transition your role and responsibilities to a new owner. If your business is only worth something as long as you a part of it — it’s not going to be worth much to someone else when you decide you want to leave. In this way, sustainability is about movement and transferring relationships, existing contracts, partnerships, and employees to a new owner.
A business that focuses on long-term sustainability will create sellability.
There are many other aspects to sustainability beyond the sellability-focused transition from one owner to the next. The last few decades have raised sustainability, also known as corporate social responsibility, to a legitimate concentration of management. That focus has proven to be beneficial to businesses that concentrate on building a culture with a focus on societal, environmental, and business issues. Recently, a Harvard Business School paper from Robert G. Eccles, Ioannis Ioannou, and George Serafeim titled “The Impact of a Corporate Culture of Sustainability on Corporate Behavior and Performance” looked at the culture and performance of companies that voluntarily adopted environmental and social policies many years ago and compared those to companies that had not. The report states that sustainable firms outperform traditional firms in terms of both stock market and accounting performance. These companies are more likely to have positive stakeholder engagements, have more of a long-term outlook, and demonstrate more measurement and disclosure of non-financial information. The reports finds that this outperformance is stronger in sectors that are more business-to-consumer (B2C) than business-to-business (B2B), in markets where companies compete on the basis of brand and reputation, and where products depend upon large amounts of natural resources. The evidence is clear that a business that focuses on long-term sustainability is better off.
Here are four sustainability-oriented lessons small business owners can learn from this report:
- Long-term planning is important. Knowing where you want to be in 10 years isn’t just a nice thing to talk about. It is essential to managing a business you can transition to someone else and will be sustainable for them.
- Business reputation is essential. The trust a business owner builds in their business is often tied to past performance. But customers also want the confidence that your business will be there in the future. Concentrate on building the reputation of the business, not just the reputation of the owner, and you’ll build a more sustainable business.
- Stakeholder engagement pays dividends. Customers, supply chain members, and staff all have a role in building sustainability. The relationship they have with the business will help new owners move forward with less risk.
- Businesses that concentrate on sustainability are worth more. Higher financial performance may allow the business to increase profitability and therefore the value of the business.
Sellable businesses are those that are attractive and can be continued by new owners. The failure to address the sustainability element of sellability may reduce the attractiveness of your business and your ability to transition to new owners.
As a business owner where does sustainability fit into your long-term planning?