How non-financial factors influence the growth of SMBs

By Joseph Varughese
October 15, 2021, Updated on : Fri Oct 15 2021 07:11:42 GMT+0000
How non-financial factors influence the growth of SMBs
While financial numbers can show the overall health of companies, including SMBs, some vital factors unrelated to finances must also be considered in corporate decision-making and management.
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Financial data and metrics help a company’s management understand the growth and profitability potentials of the firm. However, thinking they only are critical is unwise. 


At times, management and other internal and external stakeholders do not give due credit to the non-financial factors that make a big impact. 


While this applies to companies of all sizes, it is more relevant to small and medium businesses (SMBs). Here are a few major non-financial factors that can influence the health and wealth of a company. 

Management team

A common issue with SMBs is the owner’s involvement in the company. In SMBs, the promoter-owner does most of the things, from strategic to tactical decisions. 


This not only stretches the bandwidth of the owners as they are not able to devote quality time to the company but also constraints the company from gaining the benefits of professionals. 

A professional management team is inevitable to guide the company towards a growth path through a timely and appropriate strategic decision-making process. 

Nowadays, besides having a successor from the family, companies are looking at bringing in professionals from outside to operate the company. 


Whether you look for borrowing, investments, or IPO, the structure and composition of a company’s management are looked at diligently.

Human capital 

Most companies are now paying attention to having a diverse workforce. However, companies should always have backups and succession plans for each crucial employee in each critical function at each level. 

Such human resource policies make SMBs appealing to prospective employees, especially when it is difficult for them to attract good talents. 


A well-thought-out company with universally accepted norms, including recruitment, onboarding, appraisals, training, upskilling, promotions, and exit stands a chance to attract top talents at low cost and retain them for long. 

Stakeholder diversity

While the 80-20 rule is true across the company, it is risky to depend on a few stakeholders to run it, particularly SMBs. You should balance the risks and profitability while spreading your customers, suppliers, employees, lenders, investors, etc., over a reasonably large number. 


The company should survive and grow even when one or two large customers or suppliers leave. It is important to have a good pipeline of prospects and empanelled suppliers, particularly of goods and services, which can derail your operations.

Growth potential: risks and plans

The company should review, analyse, and evaluate the external and internal factors — permanent or temporary — and have plans to mitigate the risks. 


It should be able to make resources available to meet the business needs, especially during hard times. The COVID-19 pandemic is a classic example of how companies that had implemented risk mitigation strategies could stay afloat.

Technology adoption

Digital transformation makes the company agile, efficient, and effective. Adoption of emerging technologies coming under Industry 4.0, data analytics, cloud environment, etc., help companies improve their operations, get better internal and external visibility, bring efficiency, and manage cash flow.


Although digital transformation initiatives were ongoing before COVID-19, it was more confined to large organisations. 


But, now, more enterprises and SMBs, especially in retailing, healthcare, education, etc., are adopting digital transformation to survive in the competitive market. 

MSMEs

Corporate culture

Corporate culture refers to the values, beliefs, ethics, and attitudes that determine how a company's employees and management interact and handle transactions within and outside the company. 


A company's culture is reflected in its dress code, business hours, office setup, employee benefits, attrition, hiring decisions, customer and supplier relations, etc. 


The mission statement of a company reflects its culture to a great extent. It can be seen in elements, including hierarchy, process, innovation, collaboration, competition, societal responsibility, and engagement. 

Corporate governance

Corporate governance refers to the accountability of the Board of Directors to all stakeholders of the company — shareholders, employees, suppliers, customers, and society — to give the company a fair, efficient, and transparent administration. 


It is to be seen in the context that many stakeholders have policies that ensure that they deal or do business with only companies that follow good corporate governance. 

ESG (environmental, social, and governance)

ESG are a set of standards socially conscious investors use to decide whether to invest in a company. 


Environmental criteria consider how a company contributes towards safeguarding and preserving nature for society and future generations. 


Social criteria examine how the company manages relationships with employees, suppliers, customers, lenders, investors, and other stakeholders. 

Governance deals with a company’s leadership, executive pay, audits, internal controls, the constitution of the board, and shareholder rights, including minority shareholders. 

In India, various laws are emerging to ensure ESG compliance. It is important for companies, including SMBs, to ensure compliance to not lose customers, suppliers, and employees. 

Corporate Social Responsibility (CSR)

When corporate social responsibility (CSR) became a statutory obligation through the Companies Act 2013, it became mandatory for companies above a certain threshold to earmark a percentage of profits for projects under the CSR vertical.


However, some companies do it for the sake of complying with statutory obligations. The companies that follow the spirit of CSR enhances their brand in society and the market.

Not the least

Besides, companies must be vigilant and ensure they comply with all the requirements of current and future laws. 


They should also know the benefits provided to SMBs via government schemes, bring in industry standards and good practice, and anticipate and deal with future threats, including protecting intellectual property, competition, and volatile market conditions. 



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Edited by Suman Singh

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