Grow Or Stagnate…But Plan Your Growth

All indications show that your sales are on the increase and you feel terrific about the performance of your business. On top of that, new opportunities are beckoning. The next logical step, you believe, is to expand your business.

However, before you take the next step, I want to caution you that rapid, unplanned expansion will threaten your business. Expansion can often be destructive, and indeed it can be as dangerous as stagnation since the new ventures might be consuming more money than your business is generating. If you are thinking of expanding, please proceed with caution and consider the following:

Watch your expenses

When you expand your business, the following scenarios may play out:

  • You might destabilise running costs. The operating expenses that were previously small and manageable are suddenly magnified by additional, larger scale expenses required to fund growth; growth that may not see a positive ROI for some time.
  • You may also be so busy overseeing the new ventures you lose focus on what is happening across the business.

Keep a watch on the changes in the operating costs and keep evaluating their effect on the well-being of your business.

Track your profit and cash flow

In an ideal situation, expansion should mean better profit margin because:

  • You have more streams of income that translate to more sales.
  • The operating costs are now shared amongst more income generating ventures.
  • You are buying the goods in larger quantities, and you are therefore getting discounts.

However, situations are not always ideal. You may find yourself incurring more costs that will consequently eat into your profits and negatively impact cash flow. Tracking your margins and cash is crucial because you will get a clear picture: Is your business growing or are you just doing more but making the same amount of money?

Expand your human resources strategically

It is usual that with expansion your business will need more hands to execute the added responsibilities. Even though hiring more staff may seem like the natural solution, consider some of the potential pitfalls of bringing in new people into the business: The new staff may not gel with your regular team which might lead to conflicts, reduced morale, and low productivity. Also, your expenses will inevitably go up as a result of increased insurance and employee benefit costs.

There are options to increasing headcount, consider:

  • Retraining some of the existing employees to execute the new tasks.
  • Engaging freelancers and temps to handle responsibilities that do not require specialist knowledge of the business and are not too sensitive.
  • Outsource some of the work where possible.

Fund your expansion safely

The ‘go to’ source of money for the planned expansion is usually business loans. The risk with ‘ loans, however, is that should the expansion not pay off, the business will still carry the debt. So, what about going for less risky options for funding? Like government agencies that support new business ventures, partnering or equity funding. For any funding request, you must prepare a comprehensive projection of income and have a sound business plan around your new venture.

Ensure your customers continue to be ‘delighted’

Customer satisfaction is the hallmark of small business success. However, expansion often relegates customers to the back burner as focus shifts to other operational processes. Customers are very quick to realise that they no longer hold the position of importance that they once did and their loyalty starts waning.

This is the most unfortunate thing that can happen to your business. Remember what Sam Walton said, ‘There is only one boss in the firm. He can fire everyone in the company, by simply spending his money elsewhere. The customer is the boss’. Eventually, customers will defect, and this will be detrimental to the business. The defection of customers has the potential to neutralise or even negate all the benefits of expansion.

So, how do you retain your customers?

Ensure that the amount of attention that your existing customers have been receiving is unaffected. Do not interfere with the processes and staffing levels that keep your customers satisfied.

Cash will still be ‘King’

The expansion means that there might be some massive investments that will not pay off immediately. Meanwhile, the business will have to honor outstanding commitments to suppliers. Poor cash management is the leading cause of small SME failures; it is even more common during periods of expansion.  Prudent cash management will be your saving grace as you go into expansion.

Keep the peace

Businesses that are most likely to experience turbulence during expansion are those that have multiple owners. Expansion puts a strain on partnerships. People that have previously worked perfectly together may have divergent views on how to manage the expansion. They may even have different preferences on the kind of ventures that they ought to get into. Before you know it, the very top level management is having serious disagreements.

Even worse is when the expansion takes the business to levels where some of the owners no longer add any value to the business, and they become dead weight. At that point, there is need to get rid of such partners to establish unity of purpose for the growing company.

It is also likely that the staff you have now will not necessarily be the staff you need in the future. Maintain as open communications as is practical with your team and when you realize that one is not going to be part of the future, address this early and with consideration for the individual. Where possible, help the person move on – it will not only be good for them, you will feel better and your remaining staff will appreciate the effort made.

For your business to have a future, a business should and must grow; not too means stagnation. So, do not fear expansion just because of the challenges that come with growth. Your business will not fail because you expanded; it will only suffer if you do not effectively manage the process of expansion. There are no short cuts to growth. Have a clear roadmap for your business growth, plan extensively and monitor your expansion plans keenly.

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