Transparency, Trust, and Impact: How Financial Transparency and Impact Reporting Can Help B Corps
As a B Corp, you have a unique opportunity to create positive social and environmental impact while also making a profit. And to take your impact to the next level, you need to attract impact investment. But how do you do that?
When it comes to building trust with investors, financial transparency is key. In fact, financial transparency is like the trust-building glue that holds investor relationships together. Without it, you're just a hot mess, and nobody wants to invest in a hot mess.
In this article, you will find what are the steps you need to create financial transparency and once you are successful in creating financial transparency, how can you and your business attract impact investors.
So, what is financial transparency, you ask?
Financial transparency is the act of sharing your financial information with your investors in a clear and concise way. This includes everything from your income statements and balance sheets to your cash flow statements and tax returns. The goal of financial transparency is to provide investors with a complete picture of your financial health and performance so they can make informed investment decisions.
Now, we know what you're thinking. Financial transparency sounds like a snooze fest, and you're not wrong. But, it's also incredibly important, especially for women-led businesses who are often overlooked by investors. When investors see that you're transparent about your finances, they're more likely to trust you and take you seriously. And let's face it, in a world where women-led businesses receive only a fraction of the funding that male-led businesses do, we need all the trust we can get!
But financial transparency isn't just about building trust with investors. It's also about empowering yourself as a business owner. When you have a clear understanding of your finances, you can make better decisions about how to grow your business and manage your cash flow. You can also identify areas where you may need to postpone certain investments or when you have to pull the lever to increase revenue.
Now, we know that sharing your financial information can be scary. It's like sharing your deepest fears to the world – it's vulnerable and exposes your flaws. But, just like with your fears, being transparent about your finances is liberating. It allows you to be confident in who you are and what you bring to the table.
How do you become financially transparent?
It starts with being organized. You need to have a system in place for tracking your revenue, cost of goods sold, operating expenses and profitability. Choose an accounting software that can grow with your business.Whatever accounting system you choose, make sure it fits your reporting needs.
Next, you need to understand your numbers. This means understanding your revenue, gross margin, profit, and cash flow. You should be able to answer questions like “What is your unit cost? "What is your gross margin year over year or quarter over quarter?” “What was your revenue last quarter?" or as simple as “How much did you spend on people cost last year?" without hesitation.
Once you have a handle on your finances, it's time to start sharing them with impact investors. This doesn't mean you have to show them everything – just the important stuff. Start by creating a financial snapshot that highlights your revenue, gross margin, profit, and cash flow. This can be a one-page document that you share with investors at the beginning of your relationship.
Financial transparency is non-negotiable if you want to build trust with impact investors. When you take control over your finances, it can be uncomfortable, yet this is the way you can take control of your business and setting yourself up for success.
But financial transparency isn't the only way to attract impact investment. You also need to articulate how your finances relate to your impact, because you can’t accomplish one without the other. And when you find the right impact investor, they want to understand more than your revenue growth and profitability.
How Can B Corps Attract Impact Investment?
Attracting impact investment requires an intentional and strategic approach. Here are some steps that B Corps can take to attract impact investment:
Articulate your Impact B Corps should be able to articulate their impact in a clear and compelling way. This requires a rigorous and transparent impact measurement and reporting process.
Identify Impact Investors B Corps should research and identify impact investors who are aligned with their values and mission. There are many impact investing funds and networks that B Corps can tap. The solid plan to go about this is to make a list of impact investors who already invested other businesses with a similar social or environmental impact focus.
Build Relationships Building relationships with impact investors is key to attracting impact investment. B Corps should attend impact investing events, network with impact investors, and engage with impact investing organizations to build relationships.
Develop a Strong Business Case B Corps should develop a strong business case that demonstrates the financial viability and potential for impact of their business. This requires a solid understanding of the market, competition, and potential for growth. For this specific step, founders need to consider reaching out to financial experts whose values are aligned with theirs to help them develop a robust and intentional business case.
Be Transparent Impact investors require transparency and accountability. B Corps should be transparent about their impact measurement and reporting processes, as well as their financial performance.
In order to take your impact to the next level, you need to attract impact investment. Financial transparency is key to building trust with investors, allowing them to make informed decisions about investing in your business. It empowers you as a business owner to make better decisions about how to grow your business and manage your cash flow.
While financial transparency is important, it is not the only way to attract impact investment. Articulating your impact, identifying impact investors, building relationships, developing a strong business case, and being transparent are also crucial steps to take.
By being intentional and strategic in your approach to attracting impact investment, you can create positive social and environmental impact while also making a profit.