Here’s the dilemma most small businesses face. Expand too soon and may find your resources failing meet the increase in demand and this will harm your reputation. Don’t expand i.e. keep the status quo and you risk a competitor stepping up and grabbing the new business and strengthening their position may weaken yours so doing nothing really doesn’t work. Rate of attrition or churn rate will make sure a business goes belly up over time so businesses can not just stand still, they have to take a leap of faith and focus on growth.
So when is the right time to expand? Here are 5 considerations that may help you decide.
1. Assess Your Current Financial KPIs
Assessing your key performance indicators (KPIs) is a really good way to assess when your business are ready for the next step in it’s development.
If, for example, your business is meeting revenue and profit targets, then you may well feel you have the position and confidence and to expand immediately. Investors will look also at this in the same way – a company, that is meeting targets or better still exceeding them is doing something right and therefore investment opportunities are worth consideration.
If, however, you are struggling to hit the targets, then maybe the time is not quite right and you should take a step back and look at business more critically and make radical changes to get it on track.
2. Do You Have Healthy Cash Flow?
It takes investment to expand a business and when you consider your profit, existing working capital and cashflow you may be in a position to grow without seeking investment from third parties. If so this would speed up the process however using investors’ money is usually preferred by businesses with serious expansion plans.
3. Calculate the ROI of an Expansion
Calculating the return on investment (ROI) is crucial if your plans for expansion are to come to fruition, especially if you’re needing third party funding. The financial statements need to show that there’s a healthy profit margin and the overall profit grows due to expansion and that it can continue to scale upwards.
4. Does Your Premises Measure Up
In the majority of cases expanding a company will mean that you will need more space and whether that is to be used for storage, human resources or customers, you’ll need to make sure that your current premises measure up.
If not then you are faced with a decision, to either move to bigger premises, which can be a massive undertaking, or possibly build on to the premises you are currently occupying or invest in a temporary building in the interim.
5. Many Hands make Light Work
Expanding a business usually requires extra staff and management. Discuss your expansion plans with your existing team, to get their feedback and their buy-in. You need your team on the same page as you and you will need them to step up and take on more responsibility in your business as it grows. They need to be inspired by the opportunity of a growing business and how more responsibility equals more reward.