How Economic Sustainability Affects Your Business
Most small business owners hope for long-term financial success when they first open their doors. Experiencing economic growth makes room for expansion and job creation while lending a sense of excitement about the future. Economic sustainability issues within your business or the broader economy can sometimes threaten business longevity, but comprehensive sustainability practices within your business can also contribute positively toward both.
The definition of economic sustainability differs depending on whether the term is used in the smaller context of a business or in the broader context of the overall economy. In the business context, good economic sustainability happens when resources are used responsibly and thoughtfully in order to nurture stable, long-term growth. Within the economy, economic sustainability happens when GDP, or gross domestic product, rises at a steady rate, and GDP per person is high enough to afford most citizens a high standard of living.
Economic sustainability in the economy is important to small business economic sustainability because it affords consumers the ability to actively engage in the marketplace, leading to profit for businesses. Likewise, when small businesses practice smart economic sustainability practices, they reinforce a higher standard of living and sustainability in their own community and the world.
This contributes toward a positive cycle where small businesses focus on internal sustainability, which reinforces external sustainability in the economy, leading to an increase in consumers who are able to spend money in the marketplace.
Economic sustainability in an economy is strong when GDP grows at a steady rate, and there is enough GDP per person for most people to enjoy a good standard of living above the poverty threshold.
On the other hand, economic sustainability in an economy is poor when GDP falls for more than two quarters in a row, resulting in a recession, or when more than 5% of people fall below the poverty threshold. When most people are above their country's poverty threshold, money flows more easily into the economy and therefore into small businesses.
Economic sustainability in business is about doing business responsibly and building the bottom line without causing undue harm to the world around us. This means recognizing that even a very small business is part of a larger global economy, and it is important to consider how your business practices impact others environmentally, culturally and socially.
When small businesses make ethical choices for growth, the global economy benefits, our national economy benefits, our local economy benefits and small business owners benefit.
If you want your business to create financial success without impeding the ability of others to do the same, begin with a focus on the three pillars of sustainability. Focusing on these pillars can help your business attract investors and consumers who value the social good. They can help you grow your business in a sustainable way while also contributing to global sustainability:
- Environmental Pillar: Reducing your business's carbon footprint can have a beneficial impact on your bottom line.
- Social Pillar: Being a positive and ethical presence in your employees' lives, your supply chain and the community can have a beneficial impact on your bottom line.
- Economic Pillar: Compliance, governance and risk management tie into the other two pillars and can have a positive impact on your bottom line.
Although many people only think about the economic pillar when they think about economic sustainability, the truth is that all three pillars are interdependent. If a business has wasteful environmental practices and is known for unfair labor practices, on some level this will impact the bottom line and economic sustainability. It also turns out that being less wasteful environmentally can sometimes reduce costs, and when the community sees you as a positive presence, they could be more likely to do business with you.
When businesses incorporate compliance into their economic sustainability strategy, this means that they are committed to all the laws and regulations related to how they run their business. This includes laws and regulations regarding labor, advertising, customer care, environmental practices and more. Maintaining compliance helps ensure your business avoids legal trouble, builds a positive reputation and enjoys a good level of internal efficiency.
When your employees feel they are treated well at work and are fairly compensated, they want to give you their best efforts. When your supply chain, advertising strategies and customer care are ethical, you build trust in the community along with higher customer retention rates. Positive environmental practices could save money in the long run and even tie into your corporate social responsibility efforts. All of these things help ensure your bottom line grows at a healthy and sustainable rate.
Your governance efforts align with economic sustainability when positive values are reflected in your decision-making process. This means that your business efforts are aligned with the interests of stakeholders. Your governance structure operates in an efficient and ethical way that helps to ensure the integrity of your business, accuracy of records and honesty of communication. Your business knows when and how to make decisions internally, when to seek external input and how to make things right when you make mistakes.
Having a healthy governance structure in place makes economic sustainability in business more achievable because there are systems and teams in place to provide checks and balances. Instead of you trying to figure out the best way to run your small business all on your own, now you have others offering experience, input and guidance. Systems become almost automatic over time, allowing your business to grow and serve the community with less effort and mess.
Economic sustainability issues tend to flare when a small business does not have a good grasp on risk management. This means it is vital to stay on top of forecasting risk in all of the following six areas:
- Finances: Your policies, procedures and systems for handling money.
- Strategy: Your objectives, mission, vision and goals .
- External conditions: Broader economic conditions, weather and natural disasters.
- Reputation: Your sense of values, ethics and integrity.
- Compliance: Your dedication to following all rules and regulations.
- Operations: Your policies, procedures and systems for handling daily operations.
Your economic sustainability depends in large part on your ability to assess risks in each of these areas and then manage risks through one or more of the following:
- Avoiding the problem
- Transferring the risk (insurance)
- Reducing the risk
- Accepting the risk in an informed way
Failure to have solid risk management strategies can result in fines, legal problems, poor reputation, loss of customers and other economic sustainability issues. On the other hand, good risk management lends stability to your organization and helps you to grow with fewer negative surprises to the bottom line.
In the marketplace, there is growing consumer concern for the greater social good, with stakeholder groups like the millennial generation being willing to pay more for goods and services that are produced ethically. As a small business, your economic sustainability and edge in the marketplace can increase when you recognize and focus on serving these concerns.
For instance, fair labor and supply chain policies might seem more appealing when you learn that it helps cut down on the demand fueling human trafficking. Reducing your carbon imprint might seem more appealing when you recognize the gravity of climate change.