Top 5 finance and governance tools

Having a sustainable business is managing a business in such a way that it creates long-term value. Value for the business itself but also value for society and the environment.

The power of business to create value for itself and society should not be underestimated. It is the role of the finance leader to steer this value creation by embedding sustainable financial and governance tools into their organisation. 

The concept of using finance and governance tools is straightforward, it relates to how your business manages and monitors its financial information. 

The right and effective process and tools will result in more accountability, help identify risks, and guide focus towards the organisation's progressing business plan.

We’ve highlighted here the top 5 tools which we believe will create value for both business and society. These tools will help keep your company’s finances organised.  

 1. Traditional finance tools

The first hurdle to overcome for an organisation is financial sustainability.

Without robust financial performance within a business, it cannot successfully trade over the long term. 

Traditional finance tools such as cash flow management, budgeting and forecasting, tax preparation, balance sheet controls, and stock management should all be embedded in a business and carefully managed.

Failure in this area can result in the business struggling to overcome the operational mistakes, cash flow problems, regulatory sanctions, and ultimately becoming insolvent. 

The economic and wellbeing impact on its stakeholders and society can be life-changing.

Knowing what money is coming in and out allows for easier management and planning for the months ahead. You can identify areas of spending that are inefficient so you can make changes.

2. Sustainable business cases and integrated reporting

The main difference between a sustainable financial business report and a traditional financial business report is to what extent your results add additional benefits over and above the financial projections.

These benefits are referred to as additionality.  

Sustainable business reports incorporating financial, social, and environmental value will drive understanding and increased levels of awareness of how the 3 areas are inextricably linked.

Work is underway, and in some areas well progressed, to produce methodologies to value your social impact, however, there is not yet a mandated or regulated approach.

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You can explore thought leadership and tools in this growing area here:

Princes Trust Accounting 4 Sustainability.

The rise of the Chief Value Officer.

You can start today by measuring your business's social impact through KPIs and metrics. 

There is a number associated with societal benefit. Such as: a percentage of your planned spending will be within your local community, a percentage of your employees are paid at least 10% above the national living wage, and many managerial roles within this project will be filled by women.

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3. Impact Business Models (IBMs)

IBMs can be found in the B Corporation (B Corp) framework, also referred to as the BIA. These models have the following features:

‍Specific - focused on benefiting a particular group of individuals with a particular positive benefit/outcome.

Material - focused on providing a significant positive impact to their specified stakeholder, not negligible.

Verifiable - a IBM is normally able to be documented or verified through the company's own documentation/materials.

Lasting - IBMs as an aspect of the design of the company is difficult to alter in the near term. Having an IBM is not a part of the business merely as a result of current circumstances, but is built into the nature of the business itself. 

Extraordinary - it is unusual for a company to have an IBM. It is generally something that traditional businesses don’t have. 

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Examples of how IBMs can be used to drive social value, and long term financial value, are:

• Focus on providing training and support services to underserved individuals
• Providing services or products to underserved populations in the lowest income levels
• Offer > 40% of shareholding to workforce
  

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4. Mission lock

Where a company locks in its mission through changing its articles of association to protect both its mission and ability to formally consider stakeholders in decision making.

In simple terms, this means seeing value in all stakeholders, including workers, customers and the community rather than just the interests of the shareholders. 

Having this legally mandated activity will inevitably drive social value as it becomes a core component of decision making at board level. 

Note that this legal change is not yet mandatory in the UK but is a mandatory requirement if a business would like to achieve B Corp certification.

Directors of B Corps are obligated to take into account the interests of all stakeholders. They need to therefore create mechanisms to ensure their interests are represented. Stakeholders are not granted recourse against Directors.

Directors are not subject to any further liabilities under their obligation to produce an annual impact report, but their liability does not alter in the case of providing false or misleading information.

Your business may benefit from a mission-aligned governance if you want to build brand trust with a conscious consumer base, you’re interested in attracting impact investors, and importantly, you want to maintain your company’s mission over time. 

5. Venture Capital is driven to the underserved populations

Venture capital is capital invested in a project in which there is usually higher risk but offers the potential for above-average return.

Research in VC diversification by Crunchbse has shown that a large majority (68.33%) of the capital raised across the seed, early and late VC funding stages went to all-male teams, and 28.80% to mixed-gender teams. 

And just 2.87% to all-female teams, with female teams also raising lower sums of money than their male counterparts at each funding stage. 

The picture is starkest for Black female entrepreneurs in the U.K. who were found to experience the poorest outcomes. “A total of 10 female entrepreneurs of Black appearance received venture capital investment (0.02% of the total amount invested) across the 10 years, with none so far receiving late-stage funding,” the report notes.

Driving cash into underserved populations will bring job growth into their local economy.

It is more likely to support products and services identified by these groups as benefitting these groups. 

Conclusion

Poor financial management has seen the downfall of many organisations. By implementing finance and governance tools in your organisation, you can expect more efficient monitoring of your performance and implement changes more easily. 

The right tools and process depends on the needs of your organisation, but all will lead to long term value and sustainable management. 

For more information as to how your business can become sustainable or if you need more guidance on how to implement these into your business model, have a read of our blog which details how you can align to the Sustainable Development Goals. 

We know finding the right tools for your business takes time and know how, Profit Impact are here to help you and guide you to ease this process.

‍Book a call with Sarah to find out how. #Consciousbusinessperformance