Sustainability: The goal or the rule?

If you’re a solopreneur or a microbusiness, your inbox is likely full of awards and accolades touting the most sustainable business or a business that takes steps towards being environmentally friendly.

As a microbusiness that runs on the concept of “has laptop, will serve clients,” I often wonder how I can claim to be sustainable. I could turf my beefy gaming rig that sucks down 750W for my lithe and light laptop that sips about 5% of that – and reap the electricity savings in the process.

However, for a business to produce the same outcome using fewer resources makes good sense. If I can sell the product or service at the same price while cutting costs to get there, my margins go up, correct?

With that in mind, should a business take the sustainability hatchet to absolutely everything? Like most answers in life, it depends.

“Using fewer inputs to reach the same output usually makes sense once unit economics move the right way,” says Austin Rulfs, founder of Zanda Wealth based in Adelaide. As part of his work, he has reviewed cash flows for countless shops, builders, and light manufacturers.

“A bakery that cuts electricity 25 percent through efficient ovens saves $8,400 a year on a $3,000 monthly power bill. If the ovens cost $50,000 installed the payback is 71 months which is too long for a small team. Add a throughput lift of 5 trays per hour and weekly output rises 200 trays. At $12 per tray revenue lifts $2,400 a month and payback drops under 18 months. Resource cuts win when they unlock capacity or reduce downtime, not only a line on the bill.”

These are all fundamentals of business finance, as my good friend and financial educator Chinmay Ananda once wrote in his book, FUNdamentals of Financial Statements, the best place for a company to be is at the highest profitability using their current available resources, that being money and assets.

He goes on to say that every asset has a corresponding liability and a business doesn’t truly possess any asset outright. There may be liabilities in terms of loans or hire purchase, depreciation, or operating expenses. This is where the outliers can start to creep in.

“Rebound is real where lower unit cost triggers extra consumption,” Austin says. “A fleet that saves 20 percent on fuel may add 10 per cent more trips and lose half the benefit. Complexity creep matters where new gear adds five minutes per shift per person which is 20 hours a month across six staff and about $1,000 in wages. Supplier lock in can erase savings when filters or cartridges add $300 a month to your costs after year one. Quality risk lurks where water or material cuts lift returns from one per cent to three per cent, which can wipe out $2,000 per month.

“My rule fits on a napkin. Annual savings plus added gross profit minus all extra costs and finance charges must clear 30 percent of the project cost within 24 months. If a $60,000 upgrade cannot throw off $18,000 in that window, save the cash and revisit it later.”

“Context is more important than slogans,” says fellow Adelaide resident Caleb John, director of Exceed Plumbing. He says businesses (and consumers) shouldn’t just bend over backwards to go green absolutely any cost.

“The real test is whether the sustainable option lowers continuing costs without creating new risks. A properly installed hot water system that conserves water or energy use will usually pay for itself and then go on to produce savings. A green claim can ultimately be defeated if a product that is marketed as green has to be constantly repaired or requires replacement of parts.

“Sustainability is a good economic policy when the long-term cost curve is predictable and transparent, but there are spikes where the initial cost exceeds the payoffs.”

A 3kW residential solar panel system may cost between $3,000 to $5,000 after the rebate: without the subsidy, even the cheapest system would cost $3,900. As for how much it offsets grid power, it takes a bit more than a napkin calculation to figure that out. One needs to crunch more numbers to conclude if this or a similar investment follows “Austin’s rule,” but it’s a consideration every business needs to take before investing.

Sustainability is a great goal, but should it be the rule? Only if the numbers add up and it leaves your business as well as the planet in a better place.

Join the soloist movement. Whether you are new to Flying Solo or looking to grow your business, our membership options will help you attract more leads, grow your network and sharpen your business skills.  Sign up to our newsletter to get the latest news and advice straight to your inbox.

Now read this

//corestage-cdn.flyingsolo.com.au/live-smarter/business-values/how-to-get-sustainability-right-in-your-small-business/