Small business owners make important decisions everyday from inventory to customer service, yet they face one decision that is harder than the rest. They have to decide when and if to expand their business. Expansion comes with risk, but it also comes with the potential for big rewards. Ask yourself the below questions to help determine whether or not you are ready to take your business to the next level.
1. Do You Have a Steady Revenue and Stable Balance Sheet?
Have steady profitability and a stable balance sheet been the norm for an extended period? When considering whether or not to expand, it’s less important to focus on your history than on your recent track record. A relatively new business may be in a great position to expand due to market dynamics and profit margins. Conversely, if your business has been in existence for decades, but your profits have stagnated or been on a downward trajectory over the past few years, growth is likely not something to incorporate into your 12-month plan.
2. Is Your Industry Strengthening?
It’s important to take into consideration your industry’s ability to support such a move. Let’s say you own a mid-sized restaurant in a neighborhood with a handful of other eateries. If your neighborhood is continuing to develop, with decreasing vacancy rates in local housing and the introduction of new businesses, you might consider expanding capacity. Meanwhile, if your market is saturated with restaurants and not a day goes by without an "Out of Business" sign popping up in one of your competitors’ windows, it’s likely time to hold off on growth.
3. Are You Experiencing Increased Demand?
If your business has had to turn down product orders because you’re already at full capacity, or you find there’s a consistent line of customers snaking its way down the sidewalk from your storefront, chances are good that you need to contemplate expansion. Whether it’s moving to a larger facility, hiring more staff or investing in improved technology, finding a way to meet increased demand can provide incremental revenue and generate sustainable growth for your business.
4. Do You Have a Great Talent Pool?
Recruiting new staff can enable your organization to pivot in the marketplace and expand your offerings to customers. Let’s say you operate a small law firm. If you bring in a new partner whose expertise and relationships are beyond your existing focus as a firm, it can provide a valuable opportunity to generate new business and expand your practice even further.
5. Do You Have Appropriate Funding in Place?
Even a successful expansion may take a little while to pay off and could come with substantial upfront costs. Business owners should explore their funding options before taking this important step and look into their options for capital with companies such as One Park Financial. The most important metric to look at is ROI -- how much incremental profit do you expect and how quickly do you need the money to pursue the investment?