There isn’t a solid definition of what financial sustainability is. However, financial stability differs from financial independence. Financial sustainability is about more than a business simply being able to survive comfortably. Financial sustainability is about long-term wealth creation. These are the three main keys to developing financial sustainability.
A Strong Capital Foundation
A firm that is set up for success will have three capital structures that will allow it to maintain its operations. The first of the structures is startup capital; the capital used to begin the firm. The second of the structures is working capital, the capital used to fund the daily operations of the business. The final of the three structures is investment capital, the extra funds that are used to build the business.
If a business is struggling to find the funds for any of these stages, they might look at taking out a loan to help them get started. It is worth doing research into the different types of loans as there are plenty out there and some that are specific to individual industries. For example, rural businesses in the US can look at taking out a usda b&i (business and industry) commercial loan which is an asset-based program that is there to help any credit-worthy rural businesses. It allows them to get financial backing to assist in the growth of the company and create more jobs in their local communities.
A business can’t maintain adequate capital or create financial sustainability if they don’t understand the finances that they currently have in their hands. This is why financial reporting for businesses is important to overall financial stability. Capital constantly moves to and from a business that is operating functionally. Additionally, when various partners are involved, finances can become more difficult to keep track of. A business that is seeking to generate financial sustainability should make it a priority to monitor their finances routinely and create reports about the health of their company. A business that is healthy and growing will experience various changes in its capital structures. Financial reports are what will allow the business to determine the actual health of their operation. To help with these financial reports and set a good base for a financial business model, software from companies such as Synario that use scenario planning can help for present and future potential company changes.
A Developed Plan
Arguably the most important key on this list, a detailed plan allows for a company to know where they would like to go and the steps that they need to take in order to get there. Financial sustainability requires preparation for distant events rather than immediate events. There are startup pr agency programs like the ones at Treble (VC Portfolio Funding Launch Accelerator Program) that can maximize press coverage for funding launches. Such developed plans can detail what goals a business would like to achieve and will provide guidance when operations may not be running according to the original plan.
Financial sustainability allows a business to generate wealth that will last for a long period of time after their death. The systems that are built to achieve financial sustainability are constructed with a heavy consideration for the future and the people who will be involved. These are three things that a business can do to create financial sustainability.
About The Author
Yuri Vanetik is an Entrepreneur, Private Investor, Coalition Builder, and Philanthropist in Orange County, California. He is the Managing Partner of Vanetik International, LLC, a management consulting firm which offers advisory services and strategic planning to businesses and industries. He is also the Managing Partner of Dominion Asset Management, a technology-driven opportunity real estate fund that invests in undervalued real estate throughout the United States. Yuri Vanetik brings over 20 years of professional experience in a variety of roles, and has been featured in notable publications, including the Wall Street Journal, California Business Journal, Forbes, and Bloomberg Law.