Positive financial performance and a healthy bottom line are key to your success as a small business owner. Today, however, companies are accountable for outcomes well beyond just financial returns.
When it comes to attracting investors and other stakeholders, additional bottom lines—including your company’s social and environmental impact—are equally important to profitability.
In this article, we’ll explore the meaning of the term quadruple bottom line and consider its significance to your business's success.
The original bottom line
As a reflection of what your business does, the original “bottom line” refers to the positioning of your net income at the very bottom of your company’s income statement.
Because the income statement captures revenues, expenses, and profitability over a period of time, this bottom line reflects your financial performance.
While the original bottom line continues to play a critical role in attracting and influencing investors, there are other success factors your business should be taking into account.
The triple bottom line
As a reflection of how your business does what it does, the term “triple bottom line” was coined by management consultant John Elkington in 1994.
Elkington felt the traditional measure of success—the original, economic bottom line—failed to fully capture a firm’s value because it ignored impacts on society (the social bottom line) and the environment (the environmental bottom line).
This triple bottom line approach is important in business because:
- It holds companies accountable for more than just their financial actions
- It reflects the business value created through social responsibility and protection of the planet’s resources
Here’s an example.
A profitable clothing company that consistently pays its shareholder dividends may be financially successful—but what about its other bottom lines?
If those profits, for example, come from keeping costs low by paying third-world factory workers unfair wages, the company’s social bottom line will be compromised. Conversely, if the company powers its clothing factory using renewable energy, its environmental bottom line will benefit.
To better demonstrate your business’s overall performance and value to existing and potential stakeholders, here are the three bottom lines—also known as “the 3 Ps”—you should be focused on.
The better your financial bottom line, the easier it is to showcase the value and success of your business. This outcome is a measure of increased net income (or profitability) quarter-over-quarter or year-over-year.
The more socially responsible you are, the better your social bottom line will be. This outcome is a measure of how proactively you tackle social injustice (think: workplace discrimination, pay inequity, and unethical supply chain practices, for example).
The more you practice sustainable growth, the better your environmental bottom line will be. This outcome is a measure of how ecologically-minded you are in running your business (think: renewable resources, carbon footprint reduction, and climate change awareness, for example).
The triple bottom line is an ethical reflection of what your business does, and how it does it. Recently, however, investors and other stakeholders have become equally concerned with why businesses do what they do.
The quadruple bottom line
As a reflection of why your business does what it does, the term “fourth bottom line” is said to have been coined by social commentator Ayman Sawaf in 2014 to express a return to the “spiritual self”.
The term “quadruple bottom line” builds on that concept by describing a company’s overarching purpose in doing the right thing socially, environmentally, and profit-wise.
Purpose: the fourth P
By putting motives on par with other business objectives, the quadruple bottom line creates a sense of purposeful progress. For many business owners, this purpose is validated by bringing happiness to the stakeholders they serve.
They might exhibit purpose by:
- Always dealing empathetically with customers and employees
- Meeting cultural needs within the community at large
- Embracing interconnectedness through charitable or ecological acts
By tying people, planet, and profit together, purpose shows your drive to improve lives and make the world a better place—all of which increases the humanist value of your business.
The quadruple bottom line isn’t just an important reminder of why we do what we do, it highlights the value of change for the better. By embracing this concept, you can better define the core purpose of your business for potential investors and position your company for more sustainable development.