After years of spinning its wheels, the sustainability train is finally leaving the station as businesses of all shapes and sizes scramble to develop environmentally responsible practices and policies. The push for more environmentally enlightened business practices in the SMB sector extends to the business-for-sale marketplace, where sustainability has migrated from the periphery to become a central concern for buyers.
But as a would-be business owner, how do you gauge the sustainability of potential business acquisitions? And how will sustainability (or the lack of it) impact your ability to achieve your goals as a business owner?
Why Sustainability Matters to SMB Buyers
Sustainability has been gaining momentum in the small and medium-sized business (SMB) community for several years. But in December 2015, the Paris Agreement created additional pressure for owners and decision makers to implement sustainable business practices.
Although the Paris Agreement is nonbinding, it marks a turning point in the effort to reduce greenhouse gas emissions through the transition to clean energy sources and other strategies. For businesses, the Paris Agreement will inevitably mean increased regulatory burdens and greater pressure from customers who want to do business with environmentally sustainable brands.
Additional Reasons to Focus on Sustainable Business Opportunities
But regulatory management and brand reputation aren't the only reasons why it makes sense for buyers to focus on sustainable acquisition opportunities. There are a few additional advantages that sustainable companies can offer new business owners.
- Cost Savings--The potential for rising energy costs are a direct threat to bottom line profitability. Clean energy sources, energy efficiency and other sustainable business practices can reduce operating costs by insulating the company from the effects of volatile fossil fuel prices.
- Employee Retention--The U.S. workforce is more environmentally conscious than ever before. Small businesses that are proactive about sustainability attract and retain young, talented workers--the kinds of employees that SMBs rely on for innovation and growth.
Characteristics of Sustainable Small Businesses
The sustainability concept gets tossed around a lot in today's business-for-sale marketplace. Yet, relatively few sellers have taken meaningful steps to move their companies toward a more sustainable business model.
To separate truly sustainable business opportunities from the pretenders, you'll need to move beyond the buzzwords and look for common characteristics of environmentally aware SMBs:
- Use of Renewable Energy--The use of renewable energy sources is a central feature of sustainable businesses. Signs that the seller has transitioned away from fossil fuels include contracts with green energy suppliers as well as the use of wind, solar and other renewable energy production equipment on site.
- Energy Efficiency--For a variety of reasons, solar panels, wind turbines and green energy suppliers aren't always an option. At a minimum, look for businesses with formal energy efficiency programs that minimize energy use through operational changes and improved resource management.
- Waste Reduction--Highly sustainable companies understand that waste reduction is a win-win for the business and the environment. Proactively reducing the amount of waste the operation generates lowers costs and reduces the company's environmental impact. Ideally, the seller should be able to provide information about the company's waste reduction strategy and demonstrate a history of measurable reductions.
- Green Certifications--Independent, third-party certifications can legitimize the sustainability efforts of SMBs. But not all certifications are the same. Do your research to make sure that any green certifications are from reputable organizations and not certification mills that lack real standards and accountability mechanisms.
- Employee Programs--Companies that prioritize sustainability offer programs to help employees become more environmentally responsible. Bike to work programs, commuter benefits, teleconferencing, work from home policies and other opportunities are strong indications that the business takes sustainability seriously.
- Sustainability Metrics--Although it's not as easy to quantify as income or expenses, sustainability needs to be tracked and measured. Efficiency metrics, sustainability scorecards and other gauges offer an important glimpse into the effectiveness of the seller's environmental commitments.
Sustainability is changing the playing field for business owners. But unfortunately, many small and medium-sized business owners haven't risen to the challenge yet. By evaluating the sustainability of potential business acquisitions, you can mitigate ownership risks and better position yourself to leverage sustainable practices for business success.