5 things to consider before expanding your business

by Citizens Staff

The motivation for business expansion may be the need for more revenue, a drive to diversify a customer base, or a desire to grow. If you are really lucky, customers might prompt expansion by asking for new products or services to complement what you sell today.

Regardless of the reason, business expansion is an exciting and potentially challenging undertaking for new business owners and experienced entrepreneurs alike. To support a successful expansion, use these five tips.

1. Research market opportunity

Business expansion may extend a company into new products, markets, or customers, and it’s important to check expansion objectives against market opportunities. A plan to expand into higher-end products to increase company profitability, for example, should include research into the size of the market and where people currently buy. Setting sights on a new location? Conducting market research could provide demographic information about that area to determine whether your target buyer is nearby and what competition you might face there. Also, look inward at your company when setting expansion goals. To increase sales by starting a referral program, for example, be sure current customers are happy enough with your business to be a reliable source of referrals. Most lenders will want a market analysis when making a lending decision.

2. Assess infrastructure readiness

Successful business expansion may require time, focus, and resources, so consider whether your business is in a position to manage the undertaking. Assess the technology you use for administrative tasks, such as payments, invoicing, delivery tracking, and other essential functions to determine if upgrades are needed. Also check whether your machinery and technology can bear additional use. If you lean on vendors for sales, customer service, or other support, confirm that their resources can be scaled up to match an expansion. Budget time for preparing additional resources or finding new ones. Use expert advisors to plan your expansion and map out the necessary resources.

3. Evaluate staffing

Business expansion may require adding additional people to your team. Avoid the mistake of assuming that your existing team can assume the increased workload of your expansion, since this may lead to quality issues. Talk with your team and advisors to determine what new staffing is required for an expansion. Then, assess who in your organization might support an expansion and what new staff is required. Keep in mind that current staff might also require additional training or upskilling to handle new processes. To maintain morale and build motivation, consider also recognizing and rewarding the employees who take on additional responsibilities. Temporary or part-time workers, agencies, or consultants may be an option for affordable and readily available talent. A business banker can help accurately estimate the cost of this aspect of an expansion.

4. Weigh the benefits and risks

A well-planned and executed business expansion strategy may generate new revenue streams that boost resilience and competitiveness. However, expansion is risky in part because it may draw attention and resources away from a current business and imperil its financial health. One way to address this risk is to treat an expansion as a separate business with its own plan and resources, even if existing company resources will be shared. In addition, most new initiatives will take longer and cost more than anticipated, so prepare for this inevitability. Other potential burdens of a business expansion may include the management of additional regulatory compliance, increased tax filing requirements, more staffing compliance requirements, an increased financial burden, and additional cash management responsibilities. Creating a business and financial plan for a business expansion can help you make informed decisions and manage these new responsibilities.

5. Plan financial needs

Some businesses use existing financial resources to fund an expansion. Others need financing to help reach their goals. Financing can be used to buy new equipment, find a larger or new space, secure the resources needed to expand, or shore up working capital. If you think you may need financing, the time to seek it is before you actually need it. Talk with your business banker about expansion plans so they can guide you through financing options and recommend tools to manage your cash flow as you expand. Meeting with business bankers to create cash flow projections and cost estimates for your plan may help to proactively identify shortfalls or financing needs.

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