Necessary Steps to Properly Expand Your Business

Many business owners have a goal to grow their company and expand upon the business model in which they’ve developed and nurtured.  Most of the time, the desire to expand stems from the desire to make more money.  Sometimes it’s for strategic reasons and other times it’s out of necessity.  Either way, if you are considering the possibility of expanding your business, it is imperative to first come to the formal realization that it is the right time. 

Be Ready for Growing Pains

Attempting to take your company to the next level at the wrong time could put you out of business.  Determining the right time to expand means that your company is financially secure and on stable ground.  This means that revenue is coming in at a steady pace and you have sizable cash reserves.  If this isn’t the case, you may not be ready to expand.  During an expansion, it’s reasonable to assume that a period of time will go by before your expansion plans generate any revenue, leaving the previously established portion of your business to support the expansion until it does.

Expanding a business may involve opening an additional location or increasing the capacity of your existing operation.  If you’re considering the possibility of opening an additional location, the goal should be replicating the same model that has previously worked for your company, just in a different territory.  If you’re expanding upon your existing system, it’s important to foresee the effects the expansion will have.

If your expansion involves more of the same types of products and/or services you’re already providing, the process could be easier.  However, if it involves new products or services that you don’t have previous experience with, it may be advantageous to consider hiring a consultant to help you through the process.  Whatever your field is, there’s always a consultant or independent contractor who is knowledgeable in that area and might know more than you.  There’s no logical reason to fumble through uncertainties when you can pay an expert to help fill in the gaps.

Due Diligence

Before any expansion plans are executed, it’s always a good idea to do your due diligence.  Research the area that you want to expand into and determine the supply and demand.  Who will your competitors be, who will object to your presence, who will your target customers be, what pitfalls will you encounter?  Just because your business model worked for you at your current location, doesn’t mean that it will work at another.

It’s also important to consider the impact that the expansion will have on the existing portion of your business.  Try to predict how the execution of the expansion will change how your company functions or operates.  Consider whether the local community will accept it or not.  Be proactive and anticipate the problems before they happen.  Instead of reacting to problems as they occur, try to think of what could go wrong and establish preventative measures.

Mergers and Acquisition

Another way to expand your business is to merge with or acquire an existing business that is either a competitor or another company that offers products/services that compliment your own.  You can find businesses for sale by contacting business brokers or by contacting business owners directly to see if they are interested in selling their company.  Before buying a business, it is recommended that you hiring a forensic accountant to help you with the due diligence and determining the company’s fiscal viability.  Also consider using an attorney who specializes in mergers and acquisitions to help you with the agreement and negotiating the terms of the deal.  This type of lawyer might know more about what can go wrong with an acquisition, more so than your regular corporate attorney.

Keep in mind that many times when business owners consider selling their company, it’s because it’s not doing well.  Acquiring a business that is not doing well already has downward mobility which will require your skills and possibly capital to bring it back up again.  Acquiring a failing business could eat away at your successful business like a cancer if the appropriate measures aren’t in place.

Don’t Grow Too Fast

If regular and continuous expansions are part of your business plan, make sure that you’re not expanding too quickly.  This has been a major factor in many large companies failing.  As the old adage suggests: slow and steady wins the race.

One way to grow your business is to wait until you have the money to do so.  Another way is to borrow the money to grow.  Playing with other people’s money could help you down the path faster but also with greater risks.  Keep in mind that no bank or private lender will extend you a loan without imposing interest rates and possibly a personal guarantee.

Remember that when you expand your business, you will also be increasing your expenses and stressors.  The last thing that any business owner wants is to become a slave to his/her own creation.  Always have a disaster plan or exit strategy in the event that your expansion doesn’t go the way you had hoped.

For more information on how to expand your business, please call Ashlar Consulting Corporation at 305-849-9399 or visit www.AshlarConsultingCorp.com.