In light of the report issued by the UN's Intergovernmental Panel on Climate Change that was released this month, it is apparent that our society stands to benefit from a shift towards eco-friendly practices. Interestingly enough, the initiatives to “go green” have been around for a lot longer than you may think. In fact, the environmentalism movement first began to take off in the 1830’s and 1840’s. Today, more people are interested in green technology and efficient living than ever before. This is good news for our society’s global well-being. And not only that, but incorporating eco-friendly practices into your business model can result in a wide range of drastic benefits for you and your bottom line.
For those of you that are beginning to think about your exit strategy in the coming years, now is the time to consider implementing environmentally-friendly changes to your business. Green initiatives are having a noticeable and positive impact on the value of companies in the current marketplace- however, these initiatives do not come to fruition overnight- they take time. In this article we will outline the benefits associated with incorporating eco-friendly practices and how they can help you sell your business.
1. Going green can increase your company’s valuation
How does going green affect your business’s value? Simple: it will save you money over time (which will increase your profit margin and your EBITDA), enhance your capital, and will therefore can increase your company’s valuation when it goes to market. This all can help you earn a more sizable payout, and who doesn’t want that? Here is a selection of financial benefits associated with going green:
- Save money by investing in green products and practices. How can you do this? One way is to choose to use high-efficiency lights like LEDs and CFLs (compact fluorescents), which last 50x longer than regular incandescent lighting and eat up a significantly smaller chunk of your electricity bill. Another alternative is to install alternative energy sources such as solar - which is currently the cheapest and most readily abundant form of energy. Furthermore, the federal government provides a solar tax credit for business owners that go solar, which can be deducted from the business’s expenses. And finally, use less paper products. We have entered the digital age and there are various new ways to replace paper to eliminate supply costs.
- Broaden and expand your customer base. Promoting eco-friendly methods can set you and your company apart from your competitors. There is no avoiding it - sustainability is going mainstream. Green products used to be dismissed as a niche initiative, but now more than ever consumers are shifting their purchasing priorities in accordance with their values. Important to note is that, as of 2015, millennials surpassed boomers as the largest generation – and consequently, the largest consumer base. “Brands that establish a reputation for environmental stewardship among today’s youngest consumers have an opportunity to not only grow market share but build loyalty among the power-spending Millennials of tomorrow, too,” says Grace Farraj, SVP, Public Development & Sustainability. Essentially, the sooner your business begins to market to this emerging movement, the more you stand to gain.
- Consumers are willing to spend more on eco-friendly products. In 2015, Nielsen polled 30,000 consumers in 60 countries around the world. They wanted to know more about what influences how people feel about brands, and how those feelings impact buying behavior. The results? Over 66% of global consumers stated that they are willing to pay more for sustainable goods. What’s more, 73% of Millennials stated that they would pay more for green products. "Despite the fact that Millennials are coming of age in one of the most difficult economic climates in the past 100 years, they continue to be most willing to pay extra for sustainable offerings - almost three-out-of-four respondents," says Nielsen. If your company were to invest in sustainable practices and products now, the financial reward is likely to far outweigh the initial cost.
Related: “What is My Business Worth?”
2. Going green can improve your hiring power and your employee retention
A factor that buyers must consider when purchasing a business is whether or not they will be able to retain the existing employees. While a buyer is not obligated to keep prior staff members on board upon acquiring the company, it is certainly in their best interest to do so - financially speaking. Many surveys suggest that it can cost upwards of tens of thousands of dollars to replace even entry-level employees. Therefore, by incorporating eco-friendly practices that can improve your hiring power and your employee retention, your business will become that much more appealing to an interested buyer.
- Eco-friendly initiatives can improve your company’s hiring power. It is important to consider that your potential employees have a stake in environmentally responsible business practices. As mentioned previously, the Millennial workforce is now the largest in the world. This generation has been brought up in an environmentally-conscious global community and this has become entrenched in many of their core values. Because of this, many Millennials will filter their job selection choices with their green priorities in mind. If your company is able to feature various (even simple) eco-friendly initiatives, you may become more attractive to the incoming generation of workers.
- Eco-friendly initiatives can improve employee retention. A new research report by the Society for Human Resource Management takes a deeper look at organizations that support sustainability programs, versus those that do not. "Forty-nine percent of businesses engaging in sustainable workplace or business practices reported their involvement in sustainability was very important in creating a positive employer brand that attracts top talent," the report noted. "In addition, 40 percent reported the involvement in sustainability was very important in improving employee retention and 33 percent indicated the involvement in sustainability was very important in developing the organization's leaders."
3. Eco-friendly businesses can increase buyer confidence
There is a reason why environmentally-friendly companies tout their green initiatives: people love to do business with companies that make them feel good about their purchasing choices. Business buyers are no different - most take pride in participating in the global effort to combat climate change. And not only that, but green initiatives often protect companies from financial anxiety as well.
- Green companies are less at risk of becoming targets of environmental lawsuits. Environmental lawsuits have been a part of our society’s justice system for over 100 years. Buyers will inspect a business’s legal history as a part of their due diligence. Not only will green initiatives help you stay out of financial trouble, but they will add to your credibility as a trustworthy company. The last thing a buyer wants is to acquire a business that is vulnerable to lawsuits, fines, or worse. Going green gives your business a competitive advantage in the acquisition marketplace because it offers prospective buyers an increased sense of security that your company is perhaps a safer bet.
- Green initiatives enhance your chances of earning the goodwill of prospective buyers. As mentioned previously, people like to feel that they are doing their small part to improve our society. Advertising your business’s eco-friendly efforts strengthens your brand reputation to consumers and buyers alike.
4. Developing eco-friendly business practices can strengthen your reputation and your legacy
This is perhaps the most important aspect to consider. Remember that regardless of who acquires your business, you were the foundation of your company’s legacy. Creating an affluent, successful business is not the big picture - you must think beyond the current generation and consider how your business will affect your local and global community after you are no longer in charge. You worked hard to grow your business, and if you are able to leave it behind as a source for positive change, you will have achieved a meaningful and lasting legacy for yourself and your family.
Lastly, while there are many personal and financial incentives to incorporate eco-friendly practices into your business, the best reason to do so is because it is the right thing to do. The most important reason is relevant not to us, but to our children. We must each do our part to ensure that we are contributing to the wellbeing of all future generations to come - one business at a time.