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Choosing to Expand? 8 Imperative Questions to Ask Yourself
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Expansion is an exciting time in any business, with a sense of success and future potential unlike any other stage in a company’s life cycle. It’s also a time of high risk, exposing you to problems ranging from financial overextension to hiring issues to logistical nightmares. All of these can turn this opportunity for greater profits into the threat of closing your doors forever.
Whether you’re expanding into a new location, a new market, or a new product, it’s best to start the planning by asking a handful of key questions about your readiness and goals. The answers won’t just tell you whether or not the expansion is a good idea, they can also help you build the expansion on a more solid foundation.
8 expansion questions to ask before you commit
1. Can you operate at a loss?
The average business becomes profitable within two to three years of opening,1 which you likely know because you’re already operating a business profitable enough to consider expanding. In many ways, expanding an existing business is like opening a new one. There will be lag time, during which the new operations lose money and rely on profits spun from your original income stream for day-to-day funding.
Look at your books to see first if your current profits are enough to support the expanded operations until they generate funds on their own. If so, how long can you, and the other owners and stockholders, tolerate that reduced profit margin? If not, how long can your entire business operate at a loss?
Once you determine that, compare it to the most likely and worst-case projections for the expansion getting up to speed. Do the math there to find a yes or a no.
2. Do you have a communications plan?
One of the biggest challenges large organizations experience is poor communication between various subsections of the group. Any expanded operation runs this risk. Take these examples:
- A new location needs clear procedures for incorporating its reports with the original or with headquarters.
- A new production facility needs policies for letting shipping, receiving, and billing know what’s coming in or out.
- A new department must know its place in the org chart and how to communicate with the other departments.
Even a solopreneur e-tail business offering a new product needs to figure out how to incorporate sales and expenses information into their overall bookkeeping. Every expansion needs a communications plan.
Don’t assume the expanded elements will seamlessly integrate into the plan you have already. You must specifically define every step of how communications will change for the business. Only once that’s in place can you honestly answer yes to this question.
3. Can you fill newly opened positions?
Any expansion will require new positions. An expanding single-person shop needs more hands to do new tasks. A small business adding a new line will need a few employees to handle the load. A new location requires management and staff.
New needs require more workers. Sometimes that means all-new positions in the new operation. Other times, you move in-house people to the new positions and fill the vacancies they left. In most instances, it’s a combination of the two.
Can you hire qualified, motivated candidates for each position within the time frame you want for your expansion? Is your projected budget for payroll realistic for the wages and benefits the best team members will require? Does your existing leadership know enough about the new subjects to effectively vet candidates? All of these elements go into your yes or no for this question.
4. Is your bookkeeping ready?
Although bookkeeping could be considered part of your communications plan, it’s important and complicated enough to require its own entry.
They say an army marches on its stomach. Every business owner knows their company marches on its cash flow. Bookkeeping manages that flow, both in terms of keeping the bills paid and informing you about the health of your business.
Like with the communications plan, your bookkeeping department should begin the expansion process with a system for incorporating all the necessary data from the new operations. How will it record the expenses and income? How will each item be coded, categorized, and separated from the company’s other income streams? What metrics will you use to gauge the success of the new endeavor?
Usually, setting this up is both easy and intuitive for a competent bookkeeper, and you should have them do it before you ramp up your expansion.
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5. Do you know the territory?
Knowing the business you’re going into is management 101. You should know the prices, customer profiles, expenses, laws, and other considerations of your expansion backward and forward before you even think about making the move. If you’re opening a new location or territory, you need to know the ground, the legal landscape, and the differences between doing business where you are and operating in the new space.
This seems obvious, but often an opportunity for expansion appears and we get tempted to jump on it in a hurry. We forget our due diligence because of real or imagined time constraints and instead try to learn as we go. There’s room for some of that during an expansion, but not much.
When considering this question, ask yourself if you know as much about the territory as your strongest competition in that sector. That should be your minimum benchmark. If you don’t, how will you overcome that competitive weakness and thrive where you’re at a disadvantage?
6. Can you scale your infrastructure?
You probably encountered a version of this potential problem at some point during the birth of your first business. It might have been a crowded opening night where customer flow outstripped your staffing. It might have been an issue where orders came in faster than your vendors could provide supplies. Whatever happened, your business systems failed to keep up with the demands of your business. If you were lucky, it cost you some stress but no long-term customers. If you weren’t, it might have dinged your company’s reputation for years.
Infrastructure scale for an expansion takes a hit in two places. First, there’s the infrastructure inherent in the expansion. Do you have the supply chains, customer service systems, staffing, and business procedures in place so it can operate smoothly even under pressure? Second, does your existing infrastructure have what it takes to handle the extra load expansion carries with it?
If you can’t answer both of those questions with a solid yes, then your answer has to be no.
7. Are your existing systems in order?
Very few things stress the systems supporting an existing business like adding the weight of an expansion. And very few things will kill an otherwise solid expansion plan like the original business folding under the strain. You must be sure neither of these factors kill either operation.
Consider the systems that drive your business today. Which of those will take on an extra load, become more expensive, or be subject to instability when the expansion goes into effect? What can you do before the expansion to shore up those points of vulnerability? Does your expansion budget have room for the expenses needed to do so?
Put simply: Is your house in order? If it’s not fully in order but is enough to handle a storm, then you can answer yes to this question.
8. Is customer service ready?
Your expansion will generate a host of questions and concerns from existing customers, a raft of new leads and customers attracted by the new offerings, and interest from lapsed clients intrigued by what you’re doing. Is your customer service ready to handle this influx? Think about it carefully:
- Are they informed enough to answer questions about the expansion’s offerings?
- Can they troubleshoot problems with your new products or services?
- Do you have enough on staff at any given time to handle the increased contact volume?
- Are they empowered to make decisions they’ll be called to make?
- Do they know enough about the expansion process to field questions on that topic?
- Are their tools robust enough to support heavy call volumes?
This is an incomplete list of considerations you’ll need to keep in mind as you plan customer support for your expansion. It’s true of a multinational corporation with eight call centers, and it’s true for a micropreneur arguing with their spouse about who has to answer the phone that evening.
It’s an important question with a clear yes or no answer. Which is it for you?
Tally up your yeses and nos in answer to the questions above. You don’t have to have 100% yeses to begin moving forward, but consider the following: If you had to answer no to more than half, you should carefully reconsider your plans to expand overall. The chances are you’re not ready.
Also, for every no answer, write a plan for changing it to a yes. Not being ready today doesn’t mean you can’t be ready eventually, and a plan of action based on these questions and their answers will make you ready much sooner.
Brian Anderson is a Michigan-based business consultant. He’s built and sold three small businesses and now works with companies on business growth.
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1. FreshBooks, “How Long Does It Take to Be Profitable? A Guide for Small Businesses.” Accessed December 28, 2020.