What is a Self-Sustaining Business Model?

When I work with small business owners, I stress the importance of maintaining a self-sustaining business model in most circumstances. Not having to worry about whether the business will need additional funds to keep going is a huge benefit to owners and frees up their time and energy to focus on other areas of the business. Today, I am going to share three key aspects of this business model so you can work towards making your business self-sustaining in the future. 

The Business Makes and Spends Its Own Money

Every business starts with an infusion of time, effort, and capital to get off the ground. While the continued operations will require time and effort, there will be a point when additional capital contributions are not needed for the ongoing success of the business. At that point, the business is paying its expenses with the income it earns from operations. Getting to this point will allow the owner to draw the distinction between “investing into the business” and “the business re-investing in itself.” For many owners, the ideal scenario is when the business can fund operations and some projects through its own funds (instead of cash injections from owners or investors). When a business reaches this level, it can even distribute funds back to the owner!  

The Business Has a Reliable Pipeline of Customers (or a Low Level of Maintenance Costs)

Any business can have a great month, but the best businesses are the ones that have customers lined up to support the operation for months to come. This could come in the form of recurring business from the same customers, a customer waitlist, or just a strong product that sells consistently every month. Without the cash inflows from future customers, the business won’t be able to stay operational for very long if other costs need to be covered. Different business models solve this problem in different ways. Some businesses rely on a strong group of recurring customers or even put money toward marketing to acquire new customers. Other businesses may choose to keep costs low while selling an online product with minimal other costs, which allows them to cover the costs easily by hosting the product on a website. Ultimately, businesses cannot survive without their customers, and setting up a business model where the customers are reliable and recurring enough to support continued operations is a key component of having a sustainable business. 

The Business Monitors and Generally Maintains Positive Cash Flows 

I tend to talk about small businesses in terms of revenues and expenses because using this language helps segment the different areas of the business for a more productive discussion. However, there's one key thing that can get missed in that context which is cash flow. Small businesses will live or die by their cash flow, and a sustainable business needs to understand it's cash flow situation at any given time so it can always keep the lights on, regardless of what else is happening. If a business undertakes a large project using its cash reserves and it doesn't leave enough to pay the upcoming monthly bills, it will have some trouble lasting long enough to see the project through. In order to support sustainable growth and ensure that the business can maintain its operations during that growth, I highly recommend building up cash reserves for emergency and project funds. By having these reserves, the business is better prepared to deal with any changes in its cash flow. Ultimately, if the business is bringing in more cash than it is spending, it will be able to support itself with the excess cash as necessary. While positive cash flow may not be the case every month (possibly due to projects or just having a bad month of sales), it’s important to understand where the cash is coming and going so business can make the appropriate decisions on what to do next.

It should be noted that not all businesses follow this model. Technology startups in particular do not abide by some of these guidelines as they raise money based on an idea or proof of concept so that they can dump more resources into research and development, with the long-term goal of selling the Company or achieving profitability. However, small businesses that are not created with the intention of selling to investors in the near-term should aim to become self-sustaining as soon as possible. If you are running a small business and are on your way to having a self-sustainable operation, congratulations! Let us know your experience in the comments below!