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Four things to consider before expanding your business

July 20, 2018

Contributed by Independent Bank

When you first started your business, your vision may have been humble, sky-high, or anywhere in between. Whatever your initial aspirations, though, business success usually leads you to consider business expansion. The idea of growing, whether to a bigger location or to multiple sites, appeals to most business owners on some level. But should you do so? Expanding your high-achieving business sounds exciting, but before you dive in, step back and take a hard look at some relevant data.

What Is Your Growth Trajectory over Time?
Business expansion costs money. Your current revenues and profits might look great, but you need to be ready to absorb the costs you will incur if you grow. This requires more than one good year; for you to be sure growth is the right move, you should look at your financial performance over at least three years. This gives you a longer-range perspective on where you are heading, and whether your business performance requires you to build.

Are You Maxing Your Customer Base?
Before you expand, you need to know you will gain enough new customers to build your revenues faster than you increase your costs. This analysis includes two key elements. First, if you are turning away potential customers, you have a base ready to flow in and lift you when you grow. Second, you should already have a steady flow of repeat customers. You cannot build your business out on the basis of one-time customers; you need repeat business to go to a higher level. A business expansion should come when you have customers at the ready.

What Is the Outlook for Your Market?
You should look at data that covers demand for the product or service you provide, in the area or areas in which you do business. Your niche must include enough potential customers to make expansion worthwhile. Whether you gain customers through taking a competitor’s market share or reaching uncommitted customers, you need enough potential in your line of business to justify the costs of getting bigger.

Do You Have the Right Structures in Place?
Before you consider business expansion, make sure that you are operating smoothly at the size you currently maintain. This includes your business operations and your cash flow. Sales followed by slow-pays and collection efforts hinder your ability to operate effectively. If you can’t rely on regular payments, growth will present a real challenge. Similarly, if you are still figuring out your business plan and daily processes, making everything bigger will only magnify your difficulties.

Business expansion creates excitement among most business owners, but you need to be prepared for the inevitable costs and growing pains. Look at your business model and finances carefully to determine whether the time is right for your company to build.

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