Three Simple Questions about Expanding Your Business
It's a high-quality problem: Your customers love you and clamor for more. But whether that means more pizzas, more spa services, or more dental visits, is it the right time to oblige them? According to Statista, only 8 percent of small businesses surveyed say this is a good time for expansion. Supporting this finding, the U.S. Chamber of Commerce Small Business Optimism Index reports that 50 percent of small businesses surveyed have shelved expansion plans for the time being, with the economy cited as a major culprit.
How about you? Economics notwithstanding, are you ready to broaden your horizons? Try asking yourself (and possibly your trusted associates) these questions to get a much better handle on answering the knock of opportunity.
What conditions are driving your potential expansion?
Consider these common reasons for expanding a business.
- Demand is outstripping supply. Your customers have spoken, and they want more. Your location(s) may be overcrowded at peak times or even off peak. Customers may be telling you they're traveling too far to get to you. (Congrats, you're gaining a broader geographic audience!) Or perhaps you're selling out of product and/or overbooking services? More locations and/or more inventory could be the answer.
- It's time to leverage your brand. You're a local gym that sees an opening for nutritional counselling. Or maybe your garden center has a future in landscape design? Adding services may bring in more business from existing customers and bring in new ones, too.
- The web is calling. In many cases, going online offers a compelling strategic advantage. You may be in a region with low labor and real estate expenses. This makes it more economical for you to maintain a wood mill and a factory to produce fine quality furniture – and undercut your national competition.
Have you considered initial and ongoing expansion costs?
When you know these figures, you can make strategic choices about how to source those costs.
- Adding one or more locations. Renting or purchasing additional space means doing your homework about taxes, zoning ordinances, and the demographics of your new location(s). In some cases, the cost of a new location may not justify the additional business.
- Hiring more and better talent. Expanding your operations may mean adding headcount. Are you staffing an additional location or adding services calling for new skill sets? When you tally these labor costs, don't forget to add time for interviews, onboarding and training, and licensing if applicable, among other costs.
- Increases in operational overhead. Expansion means more insurance, more computers, more checkouts, and yes, even more toilet paper. The financing plan for your small business expansion and your business as a whole needs to include the total increase in your ongoing expenses, from acquiring brick and mortar to how many more paper clips you'll need.
Even if you're facing great demand, an expansion still comes with startup costs that may at least temporarily impede your bottom line. Take these costs into consideration so that you're not in financial distress later.
What are your financing alternatives?
Using credit wisely can support the next phase of your business. Just consider that it may take longer than you expect to start clearing profit from your enlarged venture. Yes, "stuff happens." You may …
- Run into construction delays.
- Experience hold-ups on passing inspection on your new location's build-out.
- Need to increase your hourly or annual compensation to get qualified staff.
- Have a big contract fall through.
Adding a contingency allowance to your expansion budget can protect against these possibilities. If you need to finance that, explore your options with either your bank or a source of quick small business capital.
The pressure to seize an expansion opportunity can make you feel like you don't have the time to think – but you do. Ask these three questions so that you can move forward with confidence – whether that means answering yes or no to the call of "bigger and better."
Did You Know?
The pressure to seize an expansion opportunity can make you feel like you don't have the time to think – but you do. Ask these three questions so that you can move forward with confidence – whether that means answering yes or no to the call of "bigger and better."
Source: NFIB
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