Is it time to expand your business?
That is the question that all business owners wrestle with. They want to know if it is the right time or if the business is positioned to be expanded.
Quote of the week:
“What to do if you’ve got everything. There’s only one thing you can do: More.” -Peter Waterman
Sadly, this quote demonstrates the way a lot of entrepreneurs think. This mentality leads to them expanding their business at the wrong time, often out of boredom. You can create many disasters along the way. As an entrepreneur, I get antsy all the time. I am always looking for new opportunities and have expanded businesses way before they were ready, my staff was ready or before I had the resources required.
When do you expand your business?
The first thing you need to ascertain is why you want to expand your business in the first place. You cannot expand because you feel like it or you think it is the thing you need to do. I have talked to business owners and the answer they gave me was that they had had their business for five years it was time to expand. The, I ask them why? What made you think it was time? They will tell me that it just was. No, that is not a good answer. Here are some reasons for expanding your business
1. You are testing your business model for franchising.
To franchise a business it needs to work in more than one place.
2. You may have a lot of talent under roof and you need to give them opportunities to grow.
It is possible that within your business you do not have enough opportunities or positions to take advantage of the talent you currently have under roof.
3. There is a profitable opportunity that is undeniable.
You have the feeling that you have hit gold in a certain area and you’d like to try in a similar area with similar demographics. You want to test this profitability engine that you have or plant this money tree somewhere else and see if it will grow. Sometimes we have an idea that is profitable. There is very little that we think can stop it; we just have to test it.
4. You have brand potential.
Let’s say that you have launched a brand in a certain city where it has taken off. You found an area of differentiation or perhaps you found a tagline. Whatever it is, you found something within the brand that people gravitated towards very quickly. You have great brand potential and you feel that you could expand it to another city. Godaddy would be an example. They branded that company very quickly through their audacious commercials.
5. You have a lot of available assets.
This may be vehicles, warehouses, land, staff, or infrastructure not being used and you would like to share it. You could possibly add another location within a certain amount of miles from your existing area and share a lot of the resources. Maybe you have untapped customers. For example: Let’s say you were a roofing contractor. Your business has expanded really well and customers are constantly reaching out to you. Maybe you could add a siding or a window division. These naturally go together.
Another example would be a clothing company, UNTUCKit, the shirts that you leave untucked when you wear them. Clearly, a certain type of person buys their clothing. Maybe they could add pants, belts, or accessories. You have customers that like your product or your service and there are other offerings that would niche perfectly with what you are already offering. An additional company would be easy to do.
Beware of Boredom
Boredom will sometimes disguise itself as needing a challenge. If you as the business owner are bored and you feel that you need a challenge, look for every other way to fulfill that need besides starting another business because it could be a very expensive and costly mistake. If the only reason you have for starting your business is that you need a challenge vet that idea further. Make sure at least one of the reasons I mentioned above applies. Are you testing for a franchise? Do you have a lot of talent under your roof that needs opportunity? Do you feel like you have so much profit with what you are doing? Those are the challenges you want.
The bottom line is this: You need to know your “why” for expanding. If you don’t know your why you are going to kick yourself when you launch your business and you lose money.
What is the cost?
After you have determined your why and you are ready to expand your business, you need to know the costs involved to actually start the business. It shocks me how many business owners expand and never calculate the true hard costs. They sign a four-year lease and then they are not making money after one year. They automatically assume that they would at least be able to pay the lease. If you are not making money you may need to close the business down. You may need to eat that lease for four years.
You have to look at what the hard costs are and how long your profitable company is going to absorb these. You may end up killing the golden goose, so be very careful to calculate costs and determine how they are going to be paid for in this new business. Make sure that the profitable entity that you have is absorbing them. Again, you need to vet this idea as strongly as you would a startup because you do not want a profitable business to get crushed because you started another business and it completely depleted and sucked out the oxygen of a profitable business. Know your why and know where and how you are going to pay all the costs associated with this enterprise. Make sure these costs are not coming from your existing profitable business.