For small business owners, expansion is one of the most difficult challenges you’ll face. Knowing just the right triggers to look for before you hire that salesperson, purchase new inventory, invest more in marketing, or even open up a new location can be a daunting task. And as the business owner, there is a lot of pressure on your shoulders to make the right decision and time it perfectly; if cash flow dries up due to over eager expansion, it could mean the livelihood of some really great employees.
We’ve outlined some of the biggest challenges that small business owners face as they expand, and we included some of the most common triggers that you can use to gauge if now is the right time to expand your business.
1. HAVING ENOUGH WORKING CAPITAL
One obvious challenge is having your working capital tied up, either in investments or in accounts receivable, or just simply not having enough cashflow to hit your business’s growth point.
Sometimes, a business must make more than one investment at once. For example, if you’re not able to fill orders fast enough, then you might need to invest in both operational staff and inventory. If you’re not selling quite enough, you might need to invest in both marketing and sales staff. By having working capital at your disposal, it enables you to be flexible and versatile with your investing, enabling you to expand effectively.
- Triggers: can’t fill orders fast enough; don’t have enough orders
2. BALANCING YOUR EXPENSES AND EXPANSION
Another challenge is hitting the right balance with your capital. As you expand, your expenses become more complex, with new lines of inventory, new people and departments, and additional rent and utilities. It’s critical to keep a spending balance as you ramp up.
With each new investment, try to start gradually so that your spending charts look more like Green Circle ski slopes than Black Diamonds, then ramp up as you see success.
You’ll also have new people joining your staff, and you’ll have their interests and well being to balance with the rest of the expenses. Payroll, time off, mental and emotional well being, job satisfaction, and work atmosphere all become greater considerations as you ramp up – you can about all of these things because you take pride in your business, and also because employee turnover is usually more expensive than a happy work environment.
- Triggers: unpredictable months of growth; unpredictable months of expense
3. UNDERSTANDING OUTSIDE FORCES
Outside of your own business, there are things that can happen that impact whether or not you should expand your business. These might have to do with your competition – did two competitors recently move out of the area? Why might that have happened, and why now?
These outside forces might be changes in the market, also. Was there new legislation passed that impacts your business and industry? Are the prices of commodities that you use skyrocketing or plummeting? Why is that happening, and how does it affect your purchasing?
Or are customer behaviors at play – is seasonality working with you or against you this year, and how is that impacting how customers are spending? Perhaps some new fad diet is sweeping the nation, and your products are in the crosshairs – how will you react, and how will you adjust your investments?
- Triggers: competitive changes, market changes, customer behaviors
These are three of the biggest challenges for expanding small businesses – have you faced any of these in your recent past? Do you know of any other hurdles for expanding small businesses?