Growing your business is not a decision that can be taken lightly. A lot of planning, research and hard work go into growing a business, which is why you need to determine whether or not it is the right time for business growth.
Business expansion should not be an emotional decision, but should be one that has resulted from careful consideration of your long term business goals. You also need to weigh all the financial and logistical factors that govern business growth and only then decide whether the timing is right or not.
Factors to consider before growing a business
Here are some of the main factors that will help you decide whether it is the right time to go ahead with business expansion or not:
- Is your current business well and truly established? Many business owners make the mistake of going in for business growth without establishing their current operations firmly. Just because your first retail store is up and running successfully does not necessarily mean it is time to open another store. You first need to ensure that market penetration is at its highest with your current operations and only then decide about business expansion. If there is a possibility of increasing production capacity within your current operations, then that is what you should focus on rather than trying to expand your business with newer products or in newer markets. Unless and until your business has achieved its full potential with its existing operations, it is not a good time to think about expansion.
- Will business growth definitely lead to higher profits? Increased profit is the chief consideration for business growth. However, growing a business may not always result in higher profits. Yes, you may see a significant increase in the volumes of your sales, but if the additional sales are not enough to cover the cost of expansion, then you could be looking at huge losses. If you can benefit from economies of scale, only then should you think about growing your business. If you can buy raw materials at a lower cost because you are now buying larger quantities due to business expansion and if this helps to lower your cost of production, then that is the first step towards positive business growth. Apart from the cost of raw materials, your business growth could also result in lowering of transportation, warehousing, marketing and distribution costs. All this will enable you to lower your costs, increase your sales and thus drive greater profits. The time to grow your business is right when you can benefit from such economies of scale, else maybe not.
- Does your business have the required funds for expansion? If your business is doing well and reaping good profits, the time may be right to expand as long as you can fund the expansion internally. However, if you need to take a loan to expand your business, you need to be extremely certain that you will be able to pay off the loans along with the interest and yet reap good profits. Do not make the mistake of adopting an aggressive growth strategy, unless you have studied the return on investment thoroughly and found it to be profitable. It is best to run a smaller business that gives you regular profits, rather than taking huge loans for business growth and then realising that you have no possible means of repaying them.
- Is the global business environment conducive to business expansion? The recent downturn in the global economy had far reaching effects and caused many a business to down their shutters. Whether you have a global business or not, it is never a good time to expand your business if global cues are not too encouraging. Similarly, it may not be the right time to think about growing your business if your country is at war, or if it is recovering from any recent natural calamities. During such situations, the spending capacity of the public may become quite limited and there may be a tendency to spend only on essential products. It is important to have a favourable business environment so that your expansion plans can be fruitful.
- Will you be able to service your existing clients during the expansion phase? It is vital for any business owner to be able to retain their current clients when they are thinking about growing their business. After all, trying to attract new customers and clients at the risk of losing out on your existing customer base never makes good business sense. Before you put your growth plans into place, you need to ensure that your current business is self sufficient and can handle the needs of your customers.
By analysing all these factors with regards to your particular business, you will be able to determine whether or not the time is right for growing your business and taking it to the next level.