Financial sustainability means an organisation can keep functioning without running out of money. It’s like a shop that earns enough to pay rent and salaries and still save for the future. For Indian businesses, from small kirana stores to big companies, measuring financial sustainability is key to surviving tough times and growing. Here’s a simple guide to help organisations track their financial health.
How organisations measure financial sustainability
1. Track profit margins regularly
Profit margins show how much money a business keeps after paying all costs. For example, if a Mumbai bakery spends Rs. 80 to make a cake and sells it for Rs. 100, its profit margin is 20%.
- Gross profit margin: Sales minus production costs.
- Net profit margin: Sales minus all costs (rent, salaries, taxes).
Tip: Use tools like Tally or Excel to calculate margins monthly. If margins drop, check if material costs rose or sales fell.
2. Take a closer look at cash flow
Cash flow is the money moving in and out of a business. A positive cash flow means more money is coming in than going out.
- Operating cash flow: Money from daily sales.
- Investing cash flow: Money spent on assets like machinery.
- Financing cash flow: Loans or investor funds.
Let us now look at an example. A Chennai garment factory had Rs. 5 lakh sales but spent Rs. 6 lakh on new stitching machines. Their cash flow was negative that month, so they delayed buying more equipment.
3. Monitor DTE ratio
The debt-to-equity ratio compares loans (debt) to the owner’s investment (equity). A ratio of 1:1 means the business owes as much as it owns. Higher ratios mean more debt risk.
DTE ratio: Total debt ÷ total equity.
Let us look at a case study. A Pune IT startup had a 2:1 ratio after taking too many loans. They sold unused office space to reduce debt and improve the ratio to 0.5:1.
4. Calculate return on investment (ROI)
ROI measures how well money is used. For instance, if a Delhi café spends Rs. 1 lakh on a coffee machine and earns Rs. 1.2 lakh extra in a year, the ROI is 20%.
Formula: (Gain from investment – cost) ÷ cost × 100.
Tip: Track ROI for every big expense, like marketing campaigns or new hires.
5. Analyse liquidity ratios
Liquidity ratios show if a business can pay short-term bills.
- Current ratio: Current assets ÷ current liabilities. A ratio above 1 means the business can cover upcoming costs.
- Quick ratio: (Current assets – inventory) ÷ current liabilities.
Example: A Kolkata bookstore had a current ratio of 0.8 because most assets were unsold books. They offered discounts to clear stock and improve liquidity.
6. Review operating expenses
Operating expenses (OPEX) are daily costs like rent, salaries and electricity. If these rise faster than sales, sustainability is at risk.
- Fixed costs: Rent, salaries.
- Variable costs: Raw materials, delivery charges.
Case study: A Hyderabad restaurant noticed OPEX jumped 30% due to high fuel prices. They switched to local suppliers and cut delivery costs by 15%.
7. Use break-even analysis
Break-even is the point where sales cover all costs. For example, a Jaipur handicraft shop needs to sell 100 carpets a month at Rs. 1,000 each to cover Rs. 1 lakh in costs.
Formula: Fixed costs ÷ (price per unit – variable cost per unit).
Tip: Update break-even points if costs or prices change.
8. Audit financial statements yearly
Hire a chartered accountant (CA) to check balance sheets, income statements and cash flow statements. Audits spot errors or fraud.
Example: A Coimbatore factory’s audit found a typo overstating profits by Rs. 2 lakh. Fixing this helped them plan budgets better.
How financial institutions support financial sustainability
Many Indian small businesses struggle to get bank loans. Companies that give loans (called NBFCs) make it easier to borrow money for tools or urgent needs. For example, a farmer in Nashik got Rs. 5 lakh from a loan company to buy a tractor. This helped him earn 40% more money. If you repay loans on time, banks trust you more for future loans.
How online platforms help sell more
Online platforms help businesses sell things all over India. A woman in Jaipur sold twice as many handmade necklaces after listing them online. These websites show what sells best. This helps businesses know how much to make. For example, a Kerala spice seller saw more people buying turmeric in winter. She kept extra stock ready.
Steps to start today
- Use free tools: Google Sheets or Zoho Books for basic accounting.
- Compare monthly reports: Spot trends like rising costs or falling sales.
- Talk to experts: CAs or local MSME centres offer affordable advice.
Final thoughts
Financial sustainability isn’t about big profits—it’s about balance. Track margins, control debts and use tools like NBFC loans or online marketplaces wisely. A Surat textile trader put it best: If you know where every rupee goes, you will never run out of options. Start small, stay consistent, and your business will thrive for years.
