How Do Ethics Affect the Financial Results of a Company?

Ethical business practices aren't just your legal and financial obligation; they can also contribute to a healthy bottom line. Although companies such as Enron achieved notoriety through dishonest and unethical manipulation of company information, ethics and honesty can actually help your business build its reputation and earn the loyalty and support of your community. This is especially true with a small business whose success depends on close relationships with shareholders, customers, employees and other stakeholders such as vendors.

An ethical business creates honest and accurate financial statements, which provide the basis for honest and accurate tax reporting. Filing tax returns that genuinely reflect business activity saves you money on penalties, interest and legal fees if you are caught. This is the case even though under-reporting may seem to save you money on tax liabilities in the short term. Accurate financial reporting also gives you a clear picture of what is actually going on in your business and provides a better basis for decision-making than false data.

Small companies build their reputations and their customer relationships by earning the trust of the clients who use their products or services. A customer who feels that you have treated him fairly will reward you with his repeat business and earnest referrals. A customer who feels you have unfairly cheated him is unlikely to return and may tell other potential customers about his negative experience. A business that acts with an unusual degree of integrity gives its customers a worthy story to tell.

Businesses rely on products and services they receive from other companies. A retailer buys inventory from wholesalers, and a manufacturer relies on repairmen to keep its equipment in good working order. To keep vendor relationships in good standing, you must pay in full and on time for the goods and services you receive. Accurate and timely payment is an ethical responsibility because it involves honoring terms you have accepted and treating your partnering businesses with consideration and respect. In turn, they will help your bottom line by providing you with what you need, when you need it.

Your employees keep your company running, and it is your moral responsibility to treat them with consideration and respect. That means paying them a fair wage and compensating them for all of the hours that they have worked. Employees who are treated ethically will represent your company well, improving your bottom line by providing excellent customer service and speaking well of your business. They will also be committed to their work, going the extra distance to complete projects well and on time.