It doesn’t matter how big their companies are or how long they’ve been around. All entrepreneurs want to see their companies grow and expand.
Some businesses do this by hiring additional salespeople or introducing a new location, while others acquire a competitor or a complementary business that overlaps their existing customer base. Still, others are obsessive about understanding the growing needs of their most loyal customers and developing new products or services to address those demands.
With a measured and controlled approach, any of these expansion strategies can have long-lasting benefits to your company— especially as you consider selling at some point down the road.
In the meantime, understanding the unique risks and opportunities to each is essential.
Which Path Is Right for You?
Before considering a growth strategy, you need to address these questions:
> What is the real demand for your products or services right now— and more importantly, what is the projected demand for them over the next two to five years?
> Will expansion result in any cost
advantages or economies of scale for your business?
> How will expansion affect you and your ability to successfully operate the business under the new expansion?
> How many new customers can realistically be obtained—and how will your existing customers respond to the growing pains you may likely endure?
Be Aware of Your Limits
While planned expansion can take a business to a whole new level, expanding beyond the needs and the financial capacity of your business is one of the biggest dangers of a growth phase.
As a rule of thumb, you should plan your business’s growth capacity based on a five-year projection of demand. Your forecast should allow for additional capacity for periods of heavy demand and reduced capacity for partial down-time in any part of your business. More than this could leave a business with unhealthy overhead.
Remember, a business may go through several periods of expansion, and it’s best to phase these according to demand. Don’t try to account for every eventuality during a specific expansion phase.
Know Your Cash Flow
Even the most profitable companies can run out of cash. If your company is growing rapidly, you might need to make weekly or even daily projections to ensure money is flowing in faster than out.
Keep in mind that your cash flow projections are only as reliable as your underlying assumptions. Use real market research to generate conservative estimates rather than a “pie in the sky” market share. Talk to others who’ve started similar businesses (or call a banker) about their experience, especially when their companies were in their infancy.
Once you have a conservative basis, play with your numbers. What does your cash flow look like if income and expenses fluctuate by 10, 15 or even 20 percent? Rarely does growth follow a predictable straight line.
Use Your Natural Gauge
Most entrepreneurs would say that they don’t sleep much. There’s just too much work to do and too much to worry about.
Yet sleep is a critical factor to health and productivity. Lack of sleep can affect personal and professional relationships and decision-making abilities—all critical in the life of an entrepreneur. If you’re not sleeping well—or at all—that might be a sign to slow your expansion. Or if you’re sleeping like a baby, you might want to step on the accelerator.
