SUMMARY
If demand for your business is growing and you have some cash spare, it might be time to expand. However, due to the risks involved with scaling up, business owners need to review several factors before implementing a plan. To help you identify the right time to expand, this guide outlines seven things to consider before you decide to take your enterprise to the next level. For businesses ready to evolve, we also explain how Kriya may help you implement these changes.
As the adage goes, if your business isn't growing, it's dying. While this may sound extreme to some, expansion is a natural part of the business lifecycle. It can bring in more capital and lower production costs, two of the best ways to ensure survival in the long term. But it's not just about the bottom line. While the financial incentives of broadening your business's horizons are clear, growth-focused businesses also attract the best talent and celebrate more innovative ways of thinking. However, taking your business to the next level isn't always a piece of cake.
Expanding too fast can backfire on a business for many reasons. It can put pressure on a company's resources, weaken its finances, and compromise the quality of its products or services. Therefore, due to the risks involved with this process, it's essential that business owners carefully consider when the right time is to grow their business. To help you get it right, here are seven things to consider before you decide to invest in your business's growth.
1. HAVE YOU SECURED A LOYAL CUSTOMER BASE?
Regular customers are an asset to every business. By staying loyal to your brand, they help to keep your revenue stream consistent. In fact, a survey by Pareto Principle revealed that while regular customers only make up around ⅕ of an average business’s base, they provide up to 80% of the revenue. Therefore, if your business regularly benefits from repeat purchases, it may be a sensible time to invest in your business's development. On the contrary, if your business depends more heavily on one-off purchases, investing in its expansion may be a riskier financial move.
What's more, in addition to keeping demand for your services stable, repeat customers indicate your business's quality. By staying dedicated to your product or service, they prove stable demand for your product. This is a positive indication that your brand is likely to be well received by wider audiences. Finally, not only do loyal customers return, they often spread awareness about your product or service by word-of-mouth. For businesses looking to expand their horizons, this marketing form can help them organically reach new customers.
2. IS DEMAND STEADILY RISING?
Growth can be exciting. However, if your business doesn’t have the resources to deal with the increased demand, it can put a lot of pressure on an enterprise. If it’s not handled correctly, this pressure can result in you turning business away or making your employees work long hours. Therefore, to avoid losing customers or burning out your staff, steadily rising demand is the perfect reason to invest in your business's expansion.
Whether your workspace is an office, factory floor or food venue, one of the most common ways to respond to additional business is by expanding physically. Depending on the unique circumstances of your operation, this could include relocating or opening up a second site. For online businesses, expanding your online presence is a great way to expand.
Since the costs involved with these processes are significant, it's vital that you carefully consider your options before coming to your conclusion. You also need to be sure that your surges in demand are consistent and not in response to seasonal trends.
3. HAVE YOU STUMBLED UPON A RARE OPPORTUNITY?
Great opportunities don't come by every day. That's why when one walks your way, you need to seize it with both hands. Be it identifying a gap in the market, capitalising on a rapidly growing consumer trend or snatching up a vacant workspace in your dream location; business owners need to know when to say yes. While it may be tempting to play things safe and stick to what you know, capitalising on these golden opportunities is truly what separates the wheat from the chaff in business.
Businesses that took advantage of Covid-19 are an excellent example of this. While most of the business landscape was in turmoil, some enterprising spirits turned lemons into lemonade. Take Pot Gang, a seed delivery service that was founded during the first lockdown. As the pandemic prompted a renewed interest in permaculture and other self-care activities, Pot Gang owner Sam Smith spotted a niche in the market.
4. ARE YOU GETTING TOO COMFORTABLE?
As Chris Rusi, founder and CEO of The Coach Zone, once said, 'complacency can be the single most dangerous threat to any business. Once a business becomes too comfortable, it risks losing its competitive edge, its best-performing talent, and eventually, its customer base. Not only does this limit future growth, but it also risks breaking down what's already in place. While there are many ways to disrupt complacency and corporate laziness, growth is one of the best ways to pull it out from its roots. Therefore, to ensure your business doesn't remain stagnant, it may be wise to focus on its natural progression.
Complacency typically filters down from the top, so it's up to business owners to set an example for the rest of their team. An effective way to do this is by setting growth targets, offering generous incentives to hard-working employees, and expanding your company into new market areas. Not only will this broaden the parameters of your business, but it also has the potential to improve employee engagement. In a time where disengaged employees cost the UK economy £340 billion each year, your company has a moral and financial incentive to keep your business evolving.
5. IS YOUR INDUSTRY ON THE RISE?
On the whole, industry growth is a great thing. It indicates that the public is interested in your product, and it's a promising sign for times ahead. Therefore, if your industry has been gaining traction recently, it should be much easier for your venture to expand. On the contrary, if your industry is at a standstill or, even worse, on the decline, it may be financially irresponsible to invest more capital into growth.
While industry growth is exciting, business owners need to prepare themselves for increased competition as interest increases. Even the most successful businesses can lose out to high-growth competitors, and if you don't respond to these changes quickly enough, you face an even bigger chance of being left behind. Therefore, to avoid missing out on valuable sales to competitors, you must stay attuned to market trends.
6. CAN YOU MAINTAIN YOUR STANDARDS?
When your business is scaling fast, it can be an exciting time. However, one of the biggest mistakes companies make when expanding is prioritising growth over everything else. Additional pressure is often put on the workforce when businesses grow too quickly. This often leads to burnt-out employees. Not only does this increase worker dissatisfaction and make the company seem unprofessional, but it can also impact the quality of your product.
Even if you're confident your business is ready for expansion, you should still plan and set reasonable expectations for your growth. By creating and enforcing a detailed expansion plan, your business will be more likely to meet future demands and protect itself against any unexpected bumps down the road. Ultimately, this will keep the quality of your output high and your customer base happy.
7. DO YOU HAVE ENOUGH CAPITAL?
Even if you're running your passion project, business is always about the bottom line. So, if you're serious about taking your business to the next level, you will need the financial backing to do so. Depending on which areas your company is looking to grow in, business expansions can be expensive. Not only are there short-term costs of purchasing new equipment and machinery, but longer-term costs like payroll, marketing, and utilities will continue to chip away at your cash flow.
Moreover, there’s always the chance your company won’t be successful in achieving its goals. Therefore, to protect yourself against this reality, it's always sensible to keep some extra funds stored away for a rainy day.
To ensure you have enough growth capital on standby, your business needs to carefully calculate how much it will need to fund its expansion. This figure will vary from business to business, and while there is no way to determine the perfect amount, several considerations should be made. For example, you should factor in how fast your business can convert its current assets into cash, how fast it can pay back outstanding liabilities, and the average turnover rate. Once you have a rough estimate at hand, it may be time to explore external financing options.
WEIGHING UP THE PROS AND CONS
Every business should consider expansion at some point in its lifecycle. Yet, investing in its long-term growth isn't something that should be taken lightly. Due to the time, money, and energy it takes to successfully grow an enterprise, business owners need to be 100% certain before broadening their horizons.
By considering the seven factors above and weighing up the pros and cons of expansion, we hope you can make an informed decision about the future of your business. For entrepreneurs intent on taking the plunge, rest assured that there are financial options out there that can help you take the next steps.
FUND YOUR GROWTH WITH KRIYA
A business loan can help take your business that step further. Kriya offers a variety of cash flow solutions that are designed to fuel the growth of small-to-medium-sized enterprises (SMEs).
If you’re looking to improve your expansion capital but are waiting on invoice payments, our invoice finance option might fit the needs of your business. It offers small enterprises a quick and reliable way to access money owed to them and deliver funds in as little as 24 hours. It's a convenient, low-risk method of getting your hands on some extra cash, and it's available in both a contractual and pay-as-you-go option variety.
If you need a more substantial cash injection, our Recovery Loan Scheme (RLS) loan has got you covered. It's a government-backed scheme that provides anywhere between £50,000 to £350,000 of funding to small businesses recovering from Covid-19. As you plan your post-pandemic comeback, this funding option can help you take your business to the next level.
FREQUENTLY ASKED QUESTIONS (FAQS)
How do you know when to expand your business?
If your business has secured a loyal consumer base and your customers are asking you to grow, it may be time to expand. In addition to this, you should also consider expansion if demand in your product or service is growing, if you’ve stumbled upon a rare opportunity, if you are becoming too complacent, or if your industry is on the rise.
Why would you want to expand your business?
Your business should consider expansion for many reasons. The biggest incentive of growing your business is to increase its profits and improve its return on investment (RoI). Additionally, expanding a business could help you respond to market demands, encourage innovation and creative thought within the company and attract fresh, valuable talent to your team.
What are the risks involved with business expansion?
While expansion can seem like the next logical step in business, it doesn't come without risks. If growth occurs too quickly, is ill funded, or is poorly planned, it can lead to compromised quality, business instability and significant financial losses. To minimise the impact of these risks, business owners need to make careful considerations before they decide to expand.
What should you consider before expanding your business?
Before you consider expanding your business, you should ask yourself if you’ve secured a loyal customer base, if your demand is steadily rising, if your incentives for expanding are time-sensitive, if your business is getting too comfortable, if your industry is on the rise, if you’ll be able to maintain your quality levels, and if you have enough growth capital to invest.
What is growth capital?
Also known as expansion capital or growth equity, growth capital is a type of financing that gives businesses the funds to grow. Typically acquired by late-stage companies, this type of capital allows enterprises to invest in their resources, expand into a new market, and even open up new facilities.
How can your business maintain its standards while expanding?
Your business can maintain its standards while expanding by creating and enforcing a detailed expansion plan. Not only will this help your business to meet future demands, but it will also protect itself against any unexpected bumps down the road. This is the most effective way to keep the quality of your output consistently high and your customer base happy.
