Entrepreneurs often face the dilemma of whether they should expand their business or not. Business expansion, after all, can benefit them in many ways—there’s a potential to increase customer base, market share, cost savings, and operational improvements if done correctly.
Behind any successful expansion lies months of work and planning. To reap the potential benefits of business expansion, you must explore various opportunities and consider a few factors before venturing into them.
Growing and Expanding your Business: A Detailed Guide
This infographic will help you decide whether it’s time to expand and provide strategies on how to grow your business successfully.
Business Expansion and Its Importance
Business expansion entails using profits and finances to find ways to earn even more profit. Strategies include hiring more staff, creating new products, or targeting different markets. Successful businesses will need to expand at some point in its life to stay relevant and competitive. If they don’t, they risk stagnation, loss of profits, and getting left behind.
Furthermore, business expansion helps reduce external risks caused by competition, the market, or technological advancements. By expanding your business, you’ll create the opportunity to improve your financial viability, as investors or lenders often find larger companies more appealing.
The Pros and Cons of Business Expansion
Business expansion doesn’t only have advantages. Below are the pros and cons to consider before undertaking any significant organizational growth.
The Pros
- New customer attraction
Expanding your operations allows you to acquire customers you may not have otherwise been able to. It’s usually a byproduct of targeting new markets or developing your product line. The more customers you have, the higher the profits and more money to spend on expanding further.
- Economies of scale
A larger business can generally mean more costs are saved since production becomes more efficient, achieving economy of scale. Hiring excellent managers and investing in better technology can also help you achieve higher profits and productivity.
- Larger brand recognition
Expansion can come in the form of more extensive marketing efforts. These allow you to reach more potential customers, increase awareness of your business, and establish market influence.
- Increased production
When you expand your business, you can focus on increasing your production to meet growing customer demand. Production cycles can shrink, generating more output.
- Additional revenue stream
You can stop depending on the sales of a single product or service to generate your cash flow. Instead, create new income streams for your business through new products or partnerships. Diversifying your income streams is an effective way to make your business resilient if some products aren’t received as well as others.
The Cons
- Shortage of cash
Expansion is costly since it may entail acquiring higher-end technology or moving into larger facilities. Businesses can expect to experience cash shortages during the expansion process. Applying for business loans is common among companies eager to expand to compensate for the lack of funding.
- Compromised work quality
When the workload increases, quality can also decrease due to your staff trying to keep up and deliver on the added responsibilities on time.
- Lack of control
With more products being produced, finances rolling in, and employees being hired, business expansion can take a toll on your attention and ability to control. The growth will be more challenging if you don’t have a system for managing your business’s new facets.
- Increased staff turnover
The additional workload can stress out your team and potentially drive them away. In 2020, around 94% of Gen Z and 88% of Millennials had searched for new jobs due to burnout.
- Potential for risk
Business expansion is an investment and a risk. There’s no guarantee that you’ll get the return you were looking for when growing your team or tapping new markets. Hiring the wrong people for the job, for example, can cost companies an average of $14,900 or roughly over ₱828,000. A way to avoid costly risks is to time your business expansion right.
Should I Expand My Business? 7 Signs That Tell You So
While no clear sign tells you it’s time to expand, a few indicators show that your business is getting much bigger than you realize.
- Increased customer demand
A good sign that your company is currently too small is when your demand is higher than your supplies. It isn’t a random customer spike when you’re receiving an overflow of orders and clients consistently. It’s a sign that you should consider expanding.
- A thriving industry
Not all industries perform the same. If your business is in an industry forecasted for growth, such as retail, expansion is an option you shouldn’t take off the table. Stagnant industries with limited growth opportunities might also allow you to expand by offering new products or services to reengage the market.
- A reliable team
Expanding your business won’t be easy. But, business expansion can be less challenging if you have a reliable team—the right people are in the right roles, you’re aligned on a clear vision, and you have strong internal processes.
- Continuous profit growth
Review your annual profits and current financial status. Suppose you notice that you’re earning more than you need to operate the business. In that case, you can consider leveraging the excess and investing in hiring more team members or improving your products.
- Interested investors
Investors are always on the lookout for businesses they see potential in. If investors have contacted you or shown interest in your business, it can mean that they see growth opportunities.
- An underserved market
Suppose you notice a customer segment coming from a location you aren’t established. It may mean an opportunity to expand your business into this underserved market and grow the demand in that area.
- Repeat customers
Having regular clients can give you confidence that there’s a demand for your business. You can leverage your repeat customers when expanding your product line since satisfied customers are more likely to try additional products and services from the brand.
Once you determine that it might be time to expand, you should begin strategizing your next steps.
Effective Business Expansion Methods and Strategies
Knowing how to expand a business is equally important as realizing it’s time to do so. A failure to plan is one of the top reasons why businesses fail. Tried and tested strategies lie behind every successful business expansion. Below are a few effective ways to grow your business if you’re unsure where to start.
- Diversifying into new markets
Targeting new customers will help avoid dependence on a few products. For instance, if you operate a transportation business, acquiring trucks for business will expand your product offerings to reach clients who need larger vehicles for their delivery needs. A truck loan may help you with the costs of getting trucks for your business.
- Expanding product and service offerings
Expanding your offerings can excite existing customers and attract new ones. For example, improving your customer service can increase profitability. Around 89% of customers say they’re more likely to make another purchase because of positive customer service. Customer retention efforts such as loyalty programs can increase your bottom line by 95%.
- Merging or acquiring an existing business
Merging or acquiring an existing business allows you to leverage its consumer base, assets, and expertise. It can also help you differentiate yourself in the industry.
An example would be when luxury jewelry resale company DEL GATTO merged with I Do Now I Don’t, an online jewelry marketplace. They combined their expertise in jewelry and technology to create a unique business in the industry and increase their resale options.
- Growing your workforce
The most valuable asset of any business is the people. When a company is understaffed, it can take a toll on its people’s morale and increase the risk of accidents due to being overworked.
A larger workforce can help boost employee confidence, reduce workloads, and allow your business to tackle larger projects. You can also expand your business by starting new departments, such as a dedicated digital marketing or hiring team.
- Increasing funding
Businesses ill-equipped to handle the financial burden of expansion are in for a rough time. If you notice that consumer demand is high but don’t have the funds to respond, applying for loans could support your growth. There are multiple online loans in the Philippines you can apply for.
Business loans can be a great way to obtain the money you need to develop new products or open your store in a new location. If you have assets in good condition—available cars or trucks, for example—collateral loans could be a more beneficial option since they typically have lower interest rates.
Increased funding can also help you expand internally. An auto loan or truck loan could make good business sense to improve mobility and help you attend more critical meetings.
Business Expansion Done Right
Business expansion isn’t something that should be taken lightly. While the rewards can be significant, the risks can be just as detrimental. Before expanding your business, it’s essential to determine whether it’s called for in the first place. Review your customer behavior, industry trends, and historical business performance.
Only once you’ve decided expansion is the right move for your business can you begin drawing up the plans to achieve it successfully. Consider which product lines to expand, new markets you can reach, or internal departments you can grow.
If you’d like to take on a loan to fund your expansion, consider applying with trusted companies such as Asialink Finance. As one of the leading finance companies in the country, it offers a wide array of most convenient and accessible loans with competitive interest rates in the Philippines. Apply for a loan from Asialink Finance today.
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