Making the Decision to Expand Your Business

One of the most rewarding aspects of working in banking is the opportunity to assist and counsel a wide array of businesses in various stages of their life cycle. From introduction, growth, maturity and the eventual sale of the business or succession planning, each stage in the business cycle presents unique challenges, opportunities, and problems for the business owner. The growth stage requires careful planning and evaluation, greater management depth, organizational changes, greater production efficiencies, and expansion capital.

Consider the following factors when making the decision to expand your business:

1. Is your business, product or market well positioned for expansion? Consider your customer base (do you depend on a niche customer?); your position compared to the competition; and any restrictions on your volume production.
2. Are you prepared to make the effort? Expanding your business will increase demands of your time and effort it may require you to access personal cash to fund liquidity in times of low business profits.
3. Does your management team have the necessary skill-set? Expanding your business will require additional capital, diligent cash flow and budget management, labour and HR expertise, and experience dealing with new markets and fierce competitors.
4. Which direction will you take? You can choose to pursue new customers in your existing market, or new markets with new customers. You can develop new product lines, or may even consider buying out a competitor. This decision will set the strategy in your expansion business plan.

 
One of my clients, a woodworking and sawing machinery wholesaler, decided to expand to a new city to pursue a growing market of customers, after establishing his 15-year-old business in Saskatoon. After reviewing his business plan, I assisted the business by providing the new shop with the required operating and inventory financing. A few months into the expansion sales continued to grow but profitability was low, which prompted the business owner to inject additional funds to maintain liquidity.

The main problem was that the proven shop in Saskatoon was heavily sustaining the newer operation, and this started to take a toll on employee morale through lack of coordination and inventory control, and greater demands on the company’s financial health. Although the new operation slowly started to be self-sustained, the owner had to overcome challenging obstacles in terms of production, human resources, finance and marketing.

The most important thing you can do before making the decision to expand is to develop a growth business plan. Analyze your options and alternatives. Evaluate your resources and necessary skills required. Engage your banker, accountant, business partners, and key suppliers early in the process. And finally, be prepared for organizational change and set realistic objectives for growing your company.
 

Mauricio Vizconde is a BMO Branch Manager in Saskatoon.