Having cash to pay bills on time, not taking on expensive debts and obtaining good revenue do not guarantee financial sustainability of companies. Business literature is full of examples of businesses that had these characteristics and still succumbed.
In fact, financial sustainability is a much broader concept, which refers to financial decision-making in a company in a way that considers its impacts on the business and the environment taking into account the short, medium and long term.
To this end, knowledge about the local and global economy and, most importantly – mastering the sustainable financial management, which goes a lot in addition to controlling cash inflows and outflows and paying taxes.
In this article, understand what it is financial sustainability from a business point of view and check out some strategies to implement. Good reading!
Financial sustainability in companies: basic lessons
Although the term “sustainability” is closely associated with good environmental practices, the concept of financial sustainability in companies It means how financially healthy a business can sustain itself in the short, medium and long term.
However, it is important to consider the impact of financial decisions not only on the company's economic health, but also on communities and the environment, aiming for a balance between profitability, social and environmental responsibility.
By integrating financial sustainability into their strategies, companies create value in a lasting way, building a solid foundation for success.
Check out some teachings that are part of this concept:
Importance of long-term strategies
A financial sustainability is not limited to just seeking short-term profits, but also to ensuring that business practices are economically viable over time.
In this sense, it is necessary to think about a consistent planning. Understanding the nuances of the business and the market, talking to employees and, most importantly, understanding the customer are fundamental steps to creating realistic strategies.
The objective is to identify challenges throughout the company that may directly or indirectly affect finances. Based on this knowledge, it is possible to make assertive decisions, looking to the future of the business.
In other words: stop “putting out fires” and get out of the operational world for a bit.
This way, the company can maintain its operations profitably. And that's where the 4 G's of financial sustainability come in.
4 G's of financial sustainability
understand the 4Gs of financial sustainability “Generate, Spend, Save and Earn” helps to put into practice significant actions in the financial management of companies. Understand more about the concept of each one:
generate
The first G, “Generate”, is linked to the resources produced by the business. Find out exactly how the company generates resources, whether through the sale of products or services. This makes it possible to identify opportunities and design new ways of generating income in the long term, making the business scalable.
Spend
Here, we look at the costs that a company presents, such as labor, raw materials, taxes, technologies used. At this time, it is important to think about ways to optimize expenses and make the business efficient, ensuring a good customer experience.
Save
In addition to the resources generated and expected expenses, it is extremely important to have a financial reserve for eventualities – be it the maintenance of equipment or a moment of instability in the global economy, and also to invest in the business. Therefore, the 3rd G of financial sustainability, “Save”.
Win
Finally, money generates money and it is with this maxim that the topic “Winning” is supported. A financially healthy company means that the profits generated and saved begin to pay off on their own, making investments in a conscious and safe manner.
Challenges of applying a financial sustainability plan in companies
The speed at which the economy around the world moves does not forgive unpreparedness. This is why one of the biggest challenges faced is that of make reliable market forecasts, both in the short and long term.
According to the report Global Economic Outlook, recently released by the World Bank, the global economy is heading towards a very worrying performance. The projection is that global growth will slow to 2,4% in 2024 – falling for the third consecutive year – an aspect that reflects several factors: geopolitical instability, restrictive credit and more risk-averse global investments.
The moment can be challenging, but it is important not to close your eyes to external events and to draw up a financial sustainability plan that accounts for everything that is happening – both internally in the company and externally, in the world.
The danger of closing yourself in a bubble that only looks inside the business is that of being completely unprepared when it bursts due to some external factor. And only with financial planning It is possible to face difficulties without losing the vision of the future and the company's purpose.
Good practices for implementing financial sustainability
It is necessary to keep some good practices in mind when implementing financial sustainability into your company's routine. We separate the main ones:
Set goals and set deadlines
A great tool for setting goals, measuring results and developing action plans with well-defined deadlines is the OKRs (Objective and Key-Results).
By having well-defined OKRs, it is possible to have more engagement, clarity in objectives and predictability to achieve them. Understand the business moment through the 4Gs and, from there, define the main OKRs in the short and long term.
Analyze and monitor data
Another extremely important aspect is constantly analyzing and monitoring business data. Decisions become much more assertive and efficient if they are guided by real data.
Avoid Excessive and Expensive Debt
Although at specific moments in a company's history it is worth leveraging, this movement always needs to be done very carefully. It is essential to look at the 1st G, “Generate”, to understand the deleveraging curve (debt payment) and be extremely attentive to contracting conditions, such as interest rate fluctuations, guarantees, obligations and others.
Remember that leveraging/taking on debt always increases the company's risk and, like many things in life, needs to be done in moderation.
Although the year 2024 began with challenging forecasts for the world economy, it is possible to find opportunities in the face of challenges through sustainable financial practices.
For such, strategic planning results It is the key and, perhaps, the only way out. After all, growing requires organization. Therefore, make these good practices part of your company's routine.
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