When is the best time to expand your business?

June 19, 2018

 

Before expanding your business,  you need to take some serious consideration before doing so as if you expand too quickly, it could backfire and end up shrinking your business and wiping away profits. 

 

Every business is different, and that means the answer to the question “When is the best time to expand my business” is not as straightforward as many business owners would like. 

 

Here are some valid questions that businesses should consider when thinking about their business expansion:

 

1. Is there sufficient demand?

 

This is the most obvious question when comes to expansion. If there is not enough demand, and you expand your business at this time then the business will struggle to grow and struggle to survive.

 

In order to determine whether or not there is enough demand requires thorough market research and an analysis of current sales. If sales for your business is increasing every month, and you simply cannot service the business as quickly as sales are coming in then that is an indication that you should expand to increase supply. However there is no point in spending capital and time to increase your presence in a market which does not want your service or product.

 

Common mistake : Many businesses expand as a gamble to take over market share or 

"to go big or go home" but it is important to also bare in mind the story of "The Tortoise and the Hare" slow and steady wins the race. Most of the time it works out better for your profits if you take it slow and steady, slow growth and keeping a humble mindset could benefit your pocket in the long run! 

 

If you're a small business and low on capital , don't try to compete with the big leagues. A common example is grocery stores, you see an expansion of independent grocery chains pop up around the area but within 6 months they close as they simply cannot compete with rental overheads and cost of produce. They try to compete with big corporations like Woolworths and Coles to gain market share but they soon get pushed out as its impossible to compete with the big Leagues. 

 

Keeping the business small is not always a bad thing, having a unique idea , getting constant sales is better then spreading yourself too thin with large overheads and minimum sales!  

 

2. Can your business support growth?

 

Second question to consider is whether or not your business can even support this growth.

Does the business have enough capital to expand to rent extra shop spaces, or afford extra staff salaries?

Will you need to take out a loan to support this growth? 

Weighing up the risks and talking to your accountant or business adviser can help you determine whether you can even afford it, and they can help you breakdown the risks involved.

 

Businesses often try to expand quickly, hoping that an increased amount of revenue will translate to increased profits. However, expansion can be very costly. Taking on a large amount of debt to fund a rapid expansion can also lead to long-term problems.

 

3. Does your business have a Business Plan in place?

 

Talk to your accountant or business adviser to come up with a business plan. This is a vital part of determining whether your business can expand. 

 

A business plan can help to map out the trajectory of your business, the strengths, weaknesses and goals. Your accountant can also help you map out the sales growth and profit and determine with you if expansion is possible. 

 

 

If you need help with expansion and planning please contact us at mail@buildersbooks.com.au

and we can help you plan your next move!

 

Disclaimer

This information is not to be relied upon without speaking to your accountant, tax agent or financial adviser depending on the advice.

 

 

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