Log InJoin 

Guide For Expanding A Small Business

Guide For Expanding A Small Business

Virtually every small business hopes to get large enough to need additional locations, hire more staff and hopefully make more money. You may have heard horror stories of how businesses, even those which are nationally recognized, expanded too fast and wound up collapsing in on themselves. There is a smart way to expand a small business which is both manageable and more likely to lead to succeed.

Market Expansion

When selling a product or service your existing customer base has already decided what you have to offer is worth purchasing. When looking at market expansion there are normally two options. Expanded geographically by offering the same product or service to the same type of clientele over a larger area. Or expanding vertically by offering more products and services to your current client pool to increase the average revenue per consumer. Both of these ideas have potential downfalls and must be evaluated when considering a market expansion.

Expanding geographically means increased costs by opening additional locations or attracting additional customers from a further distance. While people may not be disinclined to drive, it will require additional marketing efforts such as radio and television advertising to attract their attention and make them aware of your business. Expanding vertically will entail adding more product lines which can increase inventory costs or adding more services which may negatively impact your brand. These options can confuse existing customers by offering products or services which don't relate to your core business offerings.

Product Diversification

Not all small business expansions require advertising throughout a region or growing vertically. This is where product and service diversification can be a good initial starting point to grow your business and receive additional revenue. Having already established product lines or service offerings and then tweaking those for an existing client base is a common technique once revenues have plateaued. Ask yourself these questions however. Is your new offering going to be well received by your existing client base? Does the additional offering complement your core products or services? Have your competitors tried offering similar products or services and what type of success did they have? Does your product diversification try to target a whole new customer base such as teens for the elderly? These questions are important because they help a business maintain focus on what made them successful to begin with.

Additional Operations

Opening additional locations is probably the most common form of expanding a small business. Restaurants are the most prolific,and most likely to benefit, from opening new locations. Make sure your business benefits from additional locations since there doesn't really need to be four or five family-run CPA offices. If however your type of business can benefit from additional locations make sure you have the financial and human resources necessary to expand.

Having enough financial capital to lease a new space, renovate it if necessary and add additional furniture or equipment can be the first stumbling block to a smooth expansion. Will you be self financing by dipping into cash reserves or getting a loan? How does a additional loan affect cash flows and overall debt load? Will you start hiring additional labor at the existing location with the intention of having them work somewhere else? How much time do you have available to devote to opening additional locations? Opening new locations can be a complicated, expensive and time-consuming process which can sometimes take a year or more to implement successfully. Proper planning and a thorough analysis will increase your odds of success when expanding a small business.

Image by: jeffreyw