At one time or another, every business goes through a growth spurt and, whether it’s a multi-national corporation or an entrepreneurial enterprise, expansion is a tough process to navigate.
The real danger for any expanding business is that it does so too quickly or in an uncontrolled way. When this happens, cash flow and customer satisfaction are usually the first casualties and, in extreme circumstances, these can result in the demise of a once flourishing business. The trick is therefore to manage the growth process so you reap the benefits in the medium- and long-term.
Are there any rules to follow when facing a business expansion? Naturally, every business has its own challenges, so one can’t really set a generic set of rules for expansion. There are however, important things to bear in mind and some pitfalls to avoid so that everything goes smoothly.
Plan your expansion
It may seem obvious that any entrepreneur going through an expansion phase should do so with a game-plan, but many businesses expand in reaction to circumstances and don’t draw up a solid plan. Without this roadmap, it’s easy to get lost along the way, making changes to your business that are either too costly or not well thought out.
During the planning phase, ask yourself:
* What is the real demand for your products or services right now?
* What is the projected demand for them over the next two to five years?
* How big do you need to grow in order to meet that demand?
* How will changing competitor activity affect your business over the next two to five years?
* What should your excess capacity for unusual demands be?
* How many additional staff will be needed and when should they best be employed?
* What's the best way phase in the expansion so cash flow isn’t compromised?
* Where can you achieve economies of scale? In other words where will expanding capacity reduce the cost of sales?
Don’t over-expand
While planned expansion can take a business to a whole new level, over-expansion is one of the biggest dangers of a growth phase. It’s easy to get carried away in the heat of the moment and to expand beyond the needs and the financial capacity of the business.
As a rule of thumb, plan a capacity based on a five-year projection of demand and allow an additional 10% of capacity over and above that for periods of heavy demand or for partial down-time in any part of your business. More than this could be very risky and leave a business with overheads it can’t cope with.
Remember, a business may go through several periods of expansion and it’s best to phase these according to demand. Don’t try to account for any and every eventuality during a specific expansion phase.
Get professional financial advice
Whatever the nature of your expansion, there are financial implications for the business and it’s always best to seek professional advice. If you need to build or purchase your own premises, for instance, it’s important to speak to a financial institution that has experience in this area.
Source:
Business Partners Ltd. 
