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Circular Economy

How do you make your business model financeable?

Many circular companies create value, but this must be clearly reflected in the application for funding. For example, you can reduce risks by gradually switching to a circular business model. These and 9 other steps to make your business model financeable are given below.

Enthusiastic? For full details of the 10 steps, read the white paper by Fischer and Achterberg (2016):

1. Choose a logical starting point

If you want to switch to a circular business model, stay close to the core competencies that you or your company already have. This creates confidence in the company.

2. Generate additional revenue through multiple use cycles

The profitability of a circular business model depends on the ability to deploy products over multiple usage cycles. Profits can increase significantly when a circular business strategy enables a second and third product life. Residual value plays an important role here. This can be increased by finding and creating second-hand markets or ‘design for disassembly’.

3. Create favourable conditions with chain partners

Adapting processes in one company can lead to higher income for a partner elsewhere in the chain. By working together and making sound agreements, risks and returns can be shared.

4. Include everyone in your value proposition

Bring your customer along: make clear why your proposition is distinctive and more attractive than the traditional model. As long as the benefits are not clear for the customer and the financier, only a small group will embrace your concept.

5. Find new routes to the user

To reduce costs and make your proposition competitive, consider new routes to the user (e.g. via digital platforms) and reconsider the role of retail.

6. Make the transition in steps

Reduce the gap between pre-financing and the break-even point (the valley of death) by combining traditional business units with circular models, and shift the balance gradually to circular.

7. Stable cash flow through robust contract

The combination of strong service contracts and relieving the customer can lead to a loyal customer base. This has the potential to generate stable and long-term cash flows. Make clear in the contract where the risks and responsibilities lie. Provides incentives for users to continue (and therefore not stop) their contracts. Calculate the right price, which covers all the costs needed throughout the life cycle of the product. Make it easy for users to continue the contract. Think of incentives for the user to handle the product well. And ways to stop the service in case of non-payment.

8. Reduce debtor risk

Reduce the risk of non-payment by users by rewarding good payment behaviour. Cooperation with a financial party is recommended.

9. Harmonize product value, payback period and contract term

If the product offered as a service has a low collateral value, the risk for a financier can be reduced, for example, by shortening the payback period.

10. Measure environmental impact on financial performance

By measuring and reporting the environmental impact of circular activities, financial institutions can make decisions based on other values in addition to their financial objectives.