There’s a moment every successful business owner has to face at some point: whether to expand or keep things local. It can be easy to get carried away and jump into an aggressive expansion head first without thinking about the consequences, but this is not always the best decision. We’ve seen many businesses fail over an ill-thought-out expansion and we’ll surely continue to see more in the future. Here are some of the principal things business owners have to take into consideration before their business expands.
Assess Your Goals
Have you managed to reach the goals you set for your business so far? Even if you have the best team behind you, a seemingly booming business and great brand awareness, it is often not the best decision to expand before you have reached your goals. You should focus instead on re-adjusting your goals or find ways to fulfil them before you move on. A successful expansion is all about setting a benchmark for yourself and reaching goals within a set timeframe.
Reaching goals is also a great way to build confidence and also attract more investors. Investors always like a business that is about to demonstrate steady and controlled growth.
Examine Your Cash Flow
While it is true that expansion increases cash flow, the expansion will also demand a lot of cash flow on hand as well. If you don’t have the luxury of having outside capital coming in or extra funds in the form of business loans with no collateral, you might have to carry the business on your back for a while in order for sales and cash flow to be able to support your expansion plans.
Anybody who owns a business knows that there is a world of difference between revenue and profit. If your current model is built towards profit, then expansion would be a great idea. But if your plans hardly allow you to have a wide enough margin to justify an expansion, then you should re-evaluate them.
Consider if Your Business is Scalable
You should also check if your business is scalable in the first place. To determine the scalability of a business, you have to assess whether increased revenues will cost more or less than what you’re spending to get your current revenue. In other words, the cost of expansion should be significantly higher than growth costs. If the increase in revenue is just slightly higher, you will burden yourself with more administrative tasks and your business will become much harder to manage. So, you have to ask yourself if all the extra administrative burden and liabilities are really worth the risk.
As you can see, business expansion plans aren’t something you should be taken lightly. It can be easy to be charmed by the idea, but it has to be done in the proper way in order to be successful. Remember to assess whether your business model is scalable or not, make sure you have reached your primary business goals, and make sure that you’ll have enough cash flow to finance your expansion plans.
