The Pros and Cons of Expanding a Small Business
Growing your business from nothing into something is an extremely difficult task.
Growing your business from nothing into something is an extremely difficult task. The process takes considerable effort and a great amount of time. There are undoubtedly going to be bumps in the road at certain points during the journey. One of those times may be when you are deciding whether or not it is a good idea to expand the company.
Expansion may have been one of your goals from the very start, and the idea of growing at the first chance possible is exciting. However, there are drawbacks to getting too big, too soon. Some companies struggle to meet their demands when they grow before they're ready to do so, and that is not something you want to have happen to your own business.
Understanding the risks and rewards of business growth will help you decide when the time is right to unveil new products, hire more employees or open up additional business locations.
Checking the forecast
Oftentimes the best route to successful growth is through a big-picture look at your company. Too many business owners see short-term success as an indicator that a business will prosper for a long time. However that's not always the case, and many companies fail because they expanded before they were really ready. The U.S. Small Business Association stated that a strategic plan involving a growth forecast is one of the best strategies for deciding if business growth is a good idea.
One of the greatest benefits of growth is expanding your customer base. Introducing more people to the goods and services you provide will help raise profits and create awareness for your brand. This can lead to greater expansion down the road.
By looking over the variables that will impact your company's growth, you will have a better idea if expansion is a good choice or not. According to the SBA, looking at the big picture will help you see potential obstacles down the road. If the path looks clear and you have the resources available to make expansion a reality, then growing the business may prove to be a strong idea.
Understanding the risk
The idea that opening up more locations or introducing new products will improve your company's bottom line doesn't always turn out to be true. Instead, expansion can occasionally lead to a watered-down product that ends up hurting the company as a whole. If you allocate too many resources to your growth and don't maintain the strong business you've already built, the entire company could suffer.
Entrepreneur magazine wrote that new products often times can cannibalize the sales of what is already on the market. While a company is selling a newer item, customers are no longer interested in buying the older model, and overall profits don't rise. The same theory applies when your company adds more employees. If those new workers don't improve the overall production, but instead just replace the output of previous staff members, your company as a whole won't see much - if any - growth.
A business owner should really study the marketplace to determine if expansion is a wise strategy or a foolish endeavor. There is a lot to be gained by growing, but it often times makes sense to stay small.
Meet with the financial professionals at Vectra Bank to learn more about what type of business growth would fit your company best.