If your business has been growing constantly, there will come a time when you have to start thinking about expansion. Expansion is a risky venture, because it requires capital investment and brings about a lot of changes.
According to data from Industry Canada (as of the end of 2012), there were 1,107,540 employer businesses in Canada, of which 1,087,803 were small. Small businesses account for 98.2 percent of employer businesses, medium-sized businesses resulted in 1.6 percent of employer businesses and large businesses were a mere 0.1 percent of employer businesses.
Whether you are small, midsize or large, it is essential that you make the proper considerations before you expand your small business.
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Will you benefit from economies of scale?
Usually, when a business expands, it will be able to reduce its per-unit cost of production. You should only expand your business if the resulting economies of scale enable you to lower your prices and increase your overall profit. Expansion can be beneficial to your business in many ways.
It allows you to protect yourself against your competitors’ price cuts and gain new resources such as better marketing resources, improved facilities and additional product features.
Are your competitors expanding?
Doing research about the market can put you in a better position to decide whether or not to expand your business.
If you can gather information about your competitors, you may be able to learn new ways to provide more benefit for your customers. Your competitors’ decision to expand may result from the discovery of new opportunities in the market, and you can either follow their lead or take a wait-and-see approach.
Taking a wait-and-see approach enables you to determine if there is really sufficient demand for your products and weigh the benefits against the risks. If you decide to expand your business, you should try to improve on your competitors’ ideas instead of copying them.
Can you finance the expansion?
If you choose to expand your business, you need to acquire additional facilities, equipment or inventory. It is important that you know exactly how much capital you need to invest and how you are going to get financing.
Also, you have to make sure that the expansion will enable you to make enough profit to repay your loans and sustain your business. Many businesses find themselves having serious debt problems because they fail to plan their growth carefully.
Are you prepared to hand over important responsibilities to others?
As your business grows, you have to run it in a different way, and you will most likely become more dependent on your partners or employees. For instance, if you plan to open a new store, you need to let someone else manage it because you cannot be in two places at the same time.
Handing important responsibilities to someone else means that you will have less control in the management of your business. You need to be prepared to take a less hands-on role if you want to expand your business.
Will your customers accept the changes?
Expanding your business means implementing a lot of changes. Your customers may need some time to accept the new way you run your business.
For example, you may have previously established a close relationship with your customers by communicating with them on a more personal level, and you may not be able to maintain such a relationship if you decide to expand your business.
Every successful business needs to expand at some point or other. When it comes to the essentials of small business management or overseeing a midsize or larger company, knowing when to take that next growth step forward is key.
Face it, knowing the right time to expand can significantly reduce the risk involved and help you build a stronger foundation for long-term growth.
About the author
John McMalcolm is a freelance writer who writes on a wide range of subjects including marketing, technology, and social media.