Expansion is an exciting chapter in the trajectory of any business. As an entrepreneur, you may feel like you are ready to watch your company grow, however, before you do so, you must make sure that it is ready to expand. It’s easy to get carried away by the prospect of expanding during times of strong organic growth.
1Make Sure the Demand Is There to Stay
The most common mistake that business owners make when they decide to expand their business is that they interpret market trends as organic growth. If your business experiences a boom in sales, you may think that this is a great indicator that it is ready for expansion.
However, this uptick in sales may only be temporary. If you decide to expand as a result of a temporary increase in sales, your business is likely to fail once the demand is no longer there. This is why you must make sure the demand for your product or service is there to stay.
For example, take the coronavirus pandemic, this seems like a great time to expand any business that’s related to the cleanliness and hygiene sector. You may be successful for a few years until the demand fizzles out, and you are left with a surplus of inventory on your hands and no one to buy it from you.
2Be Prepared to Let Go
You must be prepared to let go of the business when the time is right. Understandably, your company is your baby, but you can’t micromanage a conglomerate. Trying to oversee and hold onto every aspect of the business is only going to end up jeopardizing its success. You need to learn how to separate your emotions from the company itself.
Whether you decide to enter a new market with a foreign partner, offer your business to franchisees, or merge with a different enterprise, the reality is that you will no longer be the only voice in your company. You need to learn how to adapt to the challenges of growing a business and accept that things are bound to change. A great way to reassure yourself that things will be okay is by hiring or partnering with more skilled and more efficient people than yourself. Remember, you are only as strong as the weakest member of your team.
3Make Sure Your Finances Are in Check
They say that you have to spend money to make money, so you should ensure that you have enough money in the bank to be able to expand. Expanding your business is not cheap at all. You need to have enough cash flow to sustain your growth whilst also being able to expand your facilities or services with minimal debt.
A healthy cash flow is extremely important when you are considering expansion because you need to ensure that your sales growth can cover any increases in overhead. In business, you should always prepare for the worst. A rule of thumb when it comes to expansion is to craft two revenue plans. One will focus on the best-case scenario and the other will focus on the worst-case scenario.
4You Should Explore and Research International Markets
One of the most popular ways that businesses choose to expand is by entering international markets. This is a great way for your company to increase potential revenue, expand its customer base, gain a competitive advantage, and improve the global reputation of the business.
However, before you set your sights on foreign land, you must first explore and research the market you choose to immerse yourself within. A notable way to better understand this country is by finding a foreign partner to help you. You can also conduct market research and see if there is a demand for your product. If your business requires highly skilled workers, make sure that there is access to this talent before you make the move.
5Your Logistics Will Need to Change
If your business is growing too rapidly to keep up with, it may be time to accept some external help. You need to focus on what’s best for the company and sometimes that means delegating the workload. This way you can spend your time more efficiently by focusing on what you are great at.
During your expansion, you can outsource work that you are not so skilled in, such as public relations, marketing, or shipping and logistics. For example, if your company is experiencing a massive increase in orders, you will most likely need help with order fulfillment.
While businesses are expanding, it’s very unlikely to open up their own web design team when they can simply hire an external firm to do the work. This way you won’t have to add someone to the company payroll, nor will you have to go through the effort of the hiring process.
6Consider New Tax Implications
Another factor that business owners fail to consider when they are expanding their company is the potential tax implications that this growth brings. Depending on the scale of your growth and where you plan to expand, your business will be subjected to varying tax implications.
Taxes will vary according to the legal structure of your business, the amount of money your business earns, the state that your business operates in, and the state you decide to incorporate into.
If you decide to become a multinational business, you will be subjected to some of the highest corporate tax rates worldwide. So, if you are looking to ‘go global’ you will definitely need to come up with an international tax strategy.
Thankfully there are many case studies to look at when it comes to expanding a business. Mistakes can be very expensive, and they can even cost you your business. Try to thoroughly evaluate all of your decisions before going through with them. Make sure to learn from the mistakes of others, as these can help you make even better decisions.