Expanding your business can be a great way to maximise your profits and take your business to the next level.
But be cautious, because growing your business may not guarantee that your profits increase as well. In fact, expansion can adversely affect your customers, your profitability and the very nature of your business.
That’s not to say you shouldn’t grow your business, but any expansion needs to be planned very carefully.
So before you get started growing your business , you need to ask yourself several questions:
1. Are there economies of scale to be gained? In other words, as you expand, can you sell your products or services at lower prices, through lower unit costs, or to take more profit per item?
2. Are your competitors also expanding? If they are, they may have spotted new opportunities in the market that you haven’t. If so, you can either wait and see how they do, or follow their lead.
3. Can you finance the expansion internally or will you need a loan? Can your cash flow support the additional investment? It would be a good idea to expand only when you have already proven that demand exists for your products or services, because you are making more money.
4. Will your customers put up with your growing pains? Can you continue to fulfil orders and provide the same customer service as when you were a smaller operation? Also, is the economic climate such that customers will continue to buy as you expand?
Will you ‘get your hands dirty’ as the business expands? Are you willing to experience a change in role, and either give up some responsibilities or take on additional ones? If the business is your ‘baby’, are you up for handing it over to other managers?
Are you willing to give up a stake and a say? Expansion could mean you have to give equity and even a hand in the running of the business over to investors (think BBC’s ‘Dragon’s Den’), so you need to be sure about whether the time is right for you to do that.
Go for growth
If you are ready to go for growth, what is the best way to go about it? There are a number of ways to expand, and here are some top tips.
1. Know your business
Before you can decide how to expand your business, it is important to make sure you have a complete and thorough understanding of every aspect of it. This should cover everything from key customers to suppliers. You might want to go back and revisit the business plans you first put together when you started out.
2. Fix problem areas
In order to develop your business, you need to evaluate the current strengths and weaknesses of the business and look at opportunities and threats, and then sort them out. Part of this could mean looking at continuity plans if you suffer any business interruption.
3. Identify your top customers
By serving your most valuable customers well, you will build good relationships with them, which will help you to make the transition well through your growth phase.
4. Target new customers
This will help you to expand your business, and you can do this by diversifying into new markets, or product lines, or changing your pricing, marketing or service levels.
5. Consider joining forces
You can expand through partnerships or mergers, acquisitions, or even co-marketing agreements. It can be a good way to increase your reach and grow your customer-base and expertise all at the same time.
Lastly, here are four pitfalls to avoid when expanding:
1. Finding you are too busy to fulfil customer needs in a timely manner.
2. Finding your employees can no longer keep up with production demands.
3. Overreaching financially and facing cash flow and cost problems.
4. Growing away from your core areas of expertise as a business.
This article originally featured on the Small Business Hub by Direct Line.