10 Planning Tips to Prepare Your Small Business for Expansion

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When you first start a business, your thoughts will be focused on survival. But, in time, your business will become established, and then your mind will turn to expansion.

Your market research might have shown you that there is scope to expand your operations. There might be more than enough demand for your existing products or services. Or perhaps there are other complementary products that you could bring to market.

However, promising the prospects appear to be, your business must first be prepared to cope with rapid growth. Because if you cannot scale up when the new orders come flooding in, expansion could spell the demise of your business.

As with almost everything in business, successful business growth depends on thorough preparation and planning. So, read these ten business expansion planning tips before you light the fuse on a significant business growth program.

 

1. Plan for Growth in Phases

You might have a broad growth target in mind. Your growth target might be to double sales in twelve months, for example. But that kind of target will probably be too vague and the timescale too far into the future.

Instead, it would be better to develop a step-by-step plan detailing the monthly actions required to achieve the desired annual growth. Then, you can monitor progress throughout the year and modify your growth strategies when needed.

The growth plan will need to be as detailed as a start-up business plan. It should include product development proposals, if appropriate, market research, and marketing plans. And there should be a financial section that will consist of budgets, cash flow forecasts, and financing requirements.

 

2. Set Measurable Targets

As mentioned above, you will need to track progress throughout the expansion period. So, you will need to define growth targets. However, sales volume targets alone may not be sufficient to manage growth.

The primary objective may be to increase sales. But it would be best to also set targets for and monitor gross margins, return on investment (ROI) on marketing campaigns, and cash flow.

Expansion can put a strain on the general running of a business, too. So, there will also be non-financial key performance indicators (KPIs) that will require monitoring. For example, it will be crucial to ensure that an order fulfillment backlog does not occur. And the processing of essential financial documents, such as sales invoices, will also need monitoring.

 

3. Implement Scalable Processes and Systems

Once you have your detailed plan in place, you will need to prepare the business for expansion. And the best place to begin that process is to consider if your current business processes can handle a significant increase in volume.

Almost every function in a business will be affected by the expansion. So, pre-expansion investment in scalable technology will ensure that those processes will not hinder growth.

For example, how well will your sales team handle the number of leads you are expecting? Do you need to invest in a customer relationship management (CRM) solution? Will your accounting software cope with the increased number of transactions? Do you have the systems in place to manage large volumes of sales orders?

 

4. Consider Logistics and Physical Aspects

Upgrading business processes and computer systems will help scale up operations in preparation for expansion. But you may need to scale up physical assets, like equipment and business premises, too. 

For example, new employees will need desks, computers, software, and possibly other equipment. And, if your business sells physical products, you might need new production equipment and more extensive warehouse facilities.

It would be advisable to consider your supply chain as well. Can your current suppliers meet your increased demand for material and services, for example? Does your existing freight shipping company have the capacity to cope with the increased volume?

 

5. Hire Top Talent and Train Employees

New hires will need to learn your systems and processes before they can be 100% productive. So, it is best to hire suitable employees before putting a business expansion program into action.

Preparing for expansion doesn’t necessarily mean significantly increasing staff levels immediately. But it will help to consider the business’s future needs when recruiting. You might want to recruit people with experience in larger organizations, for example. And current employees might benefit from further training.

 

6. Define Management Policies and Structure

The hope is, of course, that your business growth plans will turn your business into a hive of activity. And it is likely that, even with thorough planning, some aspects of the operation will become stretched at some point. So, it will help to have your company policies and business processes documented and a proper management structure in place.

The crucial point to recognize is that you cannot run a large enterprise like a small business. The business owner, for example, cannot make every decision and deal with every crisis. Instead, the business owner must get used to delegating and allowing managers to become decision-makers.

 

7. Consider Impact on Existing Revenue Streams

It is essential not to neglect existing customers during a period of expansion. After all, they are the people who got your business to where it is today. So, it would be best to ensure that growth does not affect the service or products that existing customers receive. And, if you plan to offer new customers special price breaks, you might want to offer existing customers the same deal.

You might also want to consider how expansion might change the personality of your business. Will you be able to maintain the personal service that your customers currently value, for example? What steps can you take to ensure that quality does not fall in favor of volume? Indeed, if you begin to lose long-standing customers, it could be a sign that you are expanding too fast.

 

8. Assess Financing Needs

The expansion of a business will need financing. If you need new equipment, for example, that must be purchased. There will be a delay between spending money on a marketing campaign and the sales materializing.

So, you will need to prepare detailed budgets and cash flow forecasts to assess what financing will be required. And you will need to decide on what type of financing would be best and allow for the lead time to apply for and receive the funding.

When preparing your forecasts, you will also need to consider the impact of sales growth on working capital. For example, you will need to fund a larger accounts receivable (AR) balance. And you might need to increase your stocks of raw materials or goods for resale.

 

9. Strengthen Financial Position

It is not uncommon for businesses to fail following a period of expansion. A lack of working capital often causes these failures. So, it would be advisable to strengthen the business’s financial position before expanding. A solid financial situation will also help you obtain the funding you need for business growth.

So, look at ways that you might be able to strengthen your balance sheet. Pay off debt where you can, for example. And avoid taking on any new long-term debt before applying for business growth finance. It would also be worth looking at your business credit score and taking steps to improve the rating if necessary. And review your cash flow with a view to building a cash reserve if you can.

 

10. Have Contingency Plans

There will be risks in expanding your business. You will, for example, probably need to invest in people and equipment that will not be immediately 100% utilized. And you may need to move to larger premises before you need every inch of that space. So, it would be wise to plan for contingencies as well as for success.

As mentioned in point one, expanding in phases will reduce the risk of overcommitting the business. Nevertheless, it would still be wise to consider the possible need to downscale your ambitions should things not go to plan.

You might want to avoid inflexible rental agreements, for example. Instead, opt for flexible contracts from which you could extricate yourself if the need arises. You could initially hire equipment rather than purchase it outright. And it would be advisable to avoid taking on significant long-term debt based on optimistic sales forecasts. Instead, look for flexible financing options that can be scaled in line with business turnover.

 

Conclusion

Significant expansion is a big step for most small businesses. So, it is advisable to plan for business growth one step at a time.  And, if possible, fund the expansion from reserves or flexible financing options so that you are not left burdened with excessive long-term debt. Slow and steady may not be exciting, but it’s a lot better than boom and bust!

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