The Financial Implications Of Business Expansion
It is exciting when your business begins to grow as surely that means you are successful. But where to from here? If you are planning to expand your business then there are some considerations to take into account, both practical and financial. Business expansion is something that you need to plan for and ensure that your brand is ready to handle it. Let’s look at how you can do that.
Your business can grow in one of two ways. You can do it organically by simply building on your current offerings, selling more products, or approaching new clients. The other way is rapidly by investing money in a big move. Regardless of how you choose to do it, expansion means making a conscious decision.
So why are you making that decision? Is it to get a better market share, to increase your profits, to service a new kind of customer, or some other reason. Business expansion can achieve any of those things and also give your business more financial viability – larger businesses are usually viewed as more credible than their smaller counterparts by banks and investors.
Not only do you gain credibility, but you also gain security. With a wider offering you have more options. That means if one aspect or product is not performing as well as expected, then you have others to fall back on. You could also have a better exit strategy by having a larger, more stable business that is attractive to buyers.
So, how do you go about expanding?
Decide What Business Expansion Means For You
There are plenty of ways that your business can expand. You can simply do more of what you are doing now – increase your production, employ more consultants, or open a new location. You might choose to invest in another complementary business, create a new product line, move to the online space, or open a bricks and mortar store.
All of these ideas are great if your business is ready for it. But with any investment there is a risk. You need to ensure that you make the right investment at the right time.
Make A Plan
Any kind of growth exposes your business to a certain level of risk. That is why it is important to have a plan in place for how you are going to expand, the steps you are going to take and what time frame you are going to complete everything within.
Before you begin your plan for expansion, you need to have a clear picture of where your business sits currently. Know your numbers inside and out so that you are aware of how much money you have to work with. Once you know your position, you can start to form a plan for how you will move from your current state, to the future state you want to achieve.
The best way to do this is to set yourself some goals and targets. Break those larger goals into smaller chunks. Ensure those chunks have a very specific action that will add to your overall progress. They also need to be measurable and time bound so that you can track your progress.
One of the biggest aspects of your plan should be financial forecasting. Really dig into what sort of profit this business expansion is going to produce and what costs are going to be involved. It is highly likely that your costs are going to be higher, so you need to make sure that you will be able to cover them.
Consider what your daily and monthly cash flow will look like and if you have a buffer in case of emergency. Examine what higher staff numbers would do to your cash flow and if you would need more revenue to cover these costs. Don’t forget to factor in any large purchases or expenditure while expanding.
The bottom line is that your business needs to remain profitable the whole time. We would highly recommend getting in touch with your accountant to check that your figures are realistic and that you have covered everything that you should. If you need assistance with analysing your numbers then here at Accountants Plus, we are experts in business expansion. We can give plenty of advice on the best way forward for your brand and make sure your business stays profitable throughout the process. Get in touch to book a free advisory call now.
Cover Your Bases
Larger businesses have more components, so tend to be more complicated than smaller businesses. Watch out for these common pitfalls…
- Cashflow – Unless you have a planned fund for your expansion, you may need to borrow money to finance your plans. Be cautious that you can keep up with your expenditure and loan repayments.
- Quality Control – Increased production can sometimes lead to a drop in quality. Keep your customers happy by being strict with your quality control.
- Loss of Control – When your business grows, you will probably need to embrace the art of delegation. It can be hard to let go and ensure all tasks are still completed to a high standard.
- Increased Resources – Larger businesses need more equipment, more staff and more resources. There will be an element of management and budget needed to control them.
- Too Fast – Expansion can put pressure on your team, your resources and your finances. Going too fast can mean that your progress will not be sustainable.
Expanding your business can be exciting, but it also needs a lot of careful consideration. Make sure you do your homework before diving into a business expansion.