Every entrepreneur strives to make his or her business grow at some stage. Expanding a business means a higher turnover, and that can lead to higher profits. There are a number of factors that business owners should consider when expanding their business, both before and after, to help avoid problems.
Economies of scale
One key thing that business owners should consider, is whether expanding their business will allow them to either sell their products or services at a lower price, or make more profit on each product or service. If the expansion will not allow them to do either of these, they should not expand.
Expanding a business can lead to more profit being made on each item or service, as the business is likely to be able to purchase raw materials, etc. at higher volumes for a lower price, which improves margins. Being able to reduce the cost of a company’s products or services will assist a business in becoming more attractive to customers than are its competitors. Increased profits also mean greater resources to expand even further in the future.
Getting finance in place is obviously a key consideration before any expansion plan is undertaken. A business must be able to afford the expansion and to still pay the bills. Good cash flow is the key – the business must be able to maintain a good cash flow throughout the expansion, so that it can continue to finance itself. The best form of finance is money that has already been made by the business itself and is held as a cash reserve. If there is not sufficient money in the bank already, a bank loan may be the only option.
Customers and clients
A successful business is one that keeps its customers or clients happy. They should be the number one consideration at all times – if customer demand drops, the expansion of the business will fail. To avoid problems, business owners considering expansion should ensure that there is adequate customer demand, and be confident that this demand is likely to continue in the future – if economic uncertainty is on the horizon, it may not be the best time to expand. However, if a downturn in the economy means that there is a space in the market for a new, low-cost business, it could be a very good time to expand.
Keeping growth under control
A major consideration that business owners should consider is whether they will be able to cope with the rate of growth of the business once the expansion has started. Expansion can lead to the need for more staff, greater resources, and larger premises, such as those located at the Reading Business Park. The cash flow must be robust enough to finance these changes. In addition, it is important that the business owner remembers why they started the business in the first place – uncontrolled growth can lead to the business going somewhat out of control, so that it is unrecognisable as the business originally started.