Expanding Your Business The Right Way

"Examine where you sit financially and what is appropriate. Ensure you have the capacity - both the human and financial resources - before expanding. Plan for it!" by Jane Philip (OWEN SOUND)

Whether you establish your own business or you buy an existing business, you should aim at expanding that business so that it can serve a large number of customers, employ more people and increase its asset base and even increase profitability in the long run. Pursuing growth comes with many rewards including new challenges to both the business and the customers it serves. In some cases, quality of services begins to dwindle as the business grows while in other situations service quality increases. Both instances are dependent on the decisions of its owners or management.

In most cases, the businesses’ readiness to expand will improve if the owners can gain experience in all aspects of the start-up. There are also risks involved in the form of lack of capital, market uncertainty, a lack of personal readiness and management competencies. This calls for a careful analysis of the industry you are operating in, who the players in the industry are, what expansion strategy they used? Did it work? What is their current market share holding? How are you planning to outperform your competitors? A careful analysis of the above factors would help you detect loopholes in your current business set up that can be remedied early, where changes can be made rapidly and at less exposure to loss.

One common characteristic of small businesses is that, they are often managed by their owners. If the owner does not fully understand the business, during the expansion, he is more likely to be cheated by his employees especially the accounts and sales personnel. It is therefore essential to understand the business and become personally involved in every aspect of your business because, after expansion plans are implemented, you will be depending on others to whom you must delegate responsibilities. It is often useful that after expansion, you assign the cash register to an account clerks or accountant and put measures in place to prevent theft and wastage. Most of the major players in your industry would have systems in place to prevent this menace, you can benchmark on their system as you expand. It is good to be creative but if it is costly to do so, why not benchmark on other players’ system to kick start yours.

Things to do before expansion

• Rewrite a new business plan and draw new sales and marketing strategies

• Access the viability of the expansion

o Consider the impact of favorable or unfavorable economic conditions towards expansion projects.

• Be conservative with your assumptions especially with regards to sales and cash flow

• If possible, acquire a bigger business premise and get funding for the expansion

• Employ additional employees if it is necessary

• Develop new product if the need arises

Where to get help when making plans for expansion

Business advisory service would be useful in the following ways:

• Help you identify and overcome potential barriers to continued growth

• help you develop partnerships with leading financial institutions and other professional services

• provide public and private-sector information and contacts to help you manage growth-related issues

• provide opportunities to develop new business and strategic alliances

• direct you to key marketing and export resources and help your firm become export-ready

Good reasons for expansion

Increase market share and Increase profitability

New businesses usually have initial customer base that they serve over a period of time. If they are masters of what they do, they are usually pressured to open new branches to serve new market. If the notion is to meet the growing demands of customers, then it is good idea. However, it is essential for expanding businesses to be sure of the profitability of every increase in sale at every point in time.

Competitive positioning: Depending on the competitive landscape, players in an industry would have to strategically position themselves to gain more market share. Some businesses are able to reach prospective clients and customers by opening up several branches. Hence increased profitability can be rest assured. This can only be done through expansion. However, management should strategically carry out this process to ensure the business maximizes its competitive positioning in the market.

Bad reasons for expansion

Overconfidence: Naturally, entrepreneurs are often confident and likely to generate into overconfidence when their small businesses are thriving in the market and making more profits. Their past success in unrelated fields and the haste of finishing projects to add to their list of already chalked success motivates them to quickly expand the new business. This overconfidence can propel them into expanding programs without carefully working out expansion plans, like setting up a pilot project of the expansion to see what challenges it might face and put the required measures in place to prevent them.

Success in unrelated field: Some entrepreneurs who have been successful in some fields of business are often deceived by experts or themselves to venture into businesses that they have no experience in. This is because they have the required capital to start that business. Being successful in say the field of electronics marketing would not in any way make you successful in the field of construction. This is not to say, that the entrepreneur cannot be successful in an unrelated field, but it is usually advisable to employ the services of experts if the entrepreneur in question is not familiar with that line of business. One of the most dangerous things to do is to move forward in business without clarity. Despite the fact that you succeeded in another field, failing in your new business will dilute your branding. Do not touch that goodwill, do what you can do best!

Things to do after expansion

• Motivate your managers with incentives tied to their individual success.

• Benchmark on the successful policies of market leaders

• Objectively analyze your company and work on your weakness and leverage on your strengths

• Always be prepared for opportunities and send many proposals out for contracts

• Stick with what you do best during bad business times.

• Classify your expanding business into profit centers.

• Prepare monthly financial statements of your individual profit centers.

• Quickly get rid of unethical employees

• Be open to all close stakeholders and have them informed of your problems and needs so they can understand or defend you.

o Diversify your product lines as you expand or re-engineer old products to suit the ever changing needs of customers and prospective clients as well.

o Avoid overpricing after expansion, use moderate prices.

Things to avoid after expansion

• Do not allow your self-confidence overcome prudent and calculated decision-making.

• Do not fail to promptly cut cost to maintain positive cash flow.

• Do not temper with quality of products or quality service delivery

• Do not interfere with management decision unduly after delegating authority

• It is not advisable to delegate signing cheque for making capital expenditures

Now, you have an excellent idea of how to expand your business the right way. Direct questions, comments and additions to: skteye@gmail.com

© Sophia Kafui Teye/skteye@gmail.com