How To Know When To Expand Your Small Business

by Tom Egelhoff

Author Tom Egelhoff

Every business starts expanding with the first day of business. Customers come inventories increase and the business begins to grow.

The first major hurdle every business has to conquer is to reach the "break even point."

That's the time where the business produces as much income as expense. If you're not at this point yet...See: "How To Grow Your Small Or Home-Based Business To The Break-Even Level."

The next hurdle you must over come is the point in time when the business out grows you. It reaches a point where you can no longer manage all the tasks and work by yourself.

You need help, larger space better equipment or a host of other "triggers" that will let you know its time for expansion.

I can also almost guarantee that this decision will be made at the worst possible time in your business life. So, prepare for that day now and it will go a lot more smoothly.

In case you were wondering why I started this site here are some remarkable stats. According to the US Census Bureau there are around 180,000 businesses that have some form of multiple locations

. Another 5 million that have only one location. And here is the most amazing one...nearly 14 MILLION businesses that only employ one person. There should be a thousand sites like mine to help the small business owner.

But unfortunately there is only one that I know of at the moment... this one.

Small Business Expansion: It Can Be Good, It Can Be Bad...

Most business owners hope their business will grow and be successful. Others want to remain a one person business. They left their previous jobs to start their own business so they would no longer have to work for someone else.

In addition, growth can generate a whole new set of problems that most business owners don't' want to deal with.

With growth goes more responsibility. Sometimes employees that were able to handle certain levels of business are overwhelmed by the new load of responsibilities. And so are you as the owner.

Now instead of your little one person operation you have; delivery people, a part time bookkeeper, two or three full time employees, someone to answer phones and take orders and counter people or outside sales.

In addition to that add; absenteeism, employee benefits, vacations, profit sharing plans, payroll taxes, higher overhead and increased liability insurance.

Next problem; communication. With one or two people a quick meeting has everyone of the same page. With multiple locations a "team meeting" becomes a logistic nightmare to get everyone together at the same time for information to be past or training to be done.

Last but not least; This business is your dream. It's not your employees dream. They have their own dreams that don't include you.

So you have leadership and motivation of employees to contend with. See: "How To Lead & Motivate: (Yourself and Your Employees."

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What Are The Small Business Expansion "Triggers" You Should Look For?

How do you know when the time is right to kick the business into high gear? Or, to use a much overused expression, when to take the business to the "next level?" Are there signs to watch for to let you know when the time is right?

Here are some of the most obvious:

  • You can no longer fill customer needs in a timely manner. If customers are leaving empty handed or going to your competitor because you are "too busy" then the time has come to do something.

    Employees can no longer keep up with production demands. They begin making more and more mistakes and missing deadlines. Absenteeism increases and production falls. Due to the increased pressures of your job you begin making poor business decisions or using a "quick fix" for problems that need long term repair.

  • Reaction to the competition. If you are equal to your competitors then you may not need to do anything. If, however, they are expanding and taking business from you because of that expansion you should at least evaluate the possibility of expansion.

  • Don' t misunderstand the above. I'm a big believer in "NOT" reacting to every little thing the competition does. That's why I advise you to "evaluate" the situation and not over react.

    Changes in the marketplace or industry. Your business is affected by many factors. One of those factors is the very industry you are in. Government regulations may force additional equipment or other costly changes.

    New products or services might force you to change the way you do business. In New York City, newspaper stands are in trouble because people who used to buy out of town newspapers now get the same information on the internet sooner and for free.

  • Customer perception or your goods or services: Back in the 1970's seven people died from taking Tylenol® which had been laced with poison. Tylenol® reacted quickly to remove all their product from store shelves. It took a long time to regain their leading market share but they did it.

    But at sustained cost increase. A whole new form of packaging had to be developed. Tamper proof packaging had to be implemented alone with stricter inspections.

    Not just at Tylenol® but all pharmaceutical companies had to retool for this change in customer and government demands for safety.

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Are There Any Ways To Postpone Expansion?

Yes. There are some short term measures you can take that may buy you a little time before you must take the plunge. Not every one works for every business but one or two will work for most.

Here are a couple of things a business can do:

  • The quickest and most cost effective, but most difficult to do, is to become less wasteful. The problem with this is that it requires absolute dedication from all employees and that is sometimes very difficult to achieve.

  • Computerize: You might say, "That's really expensive." I can be expensive but it's certainly less than more buildings or vehicles or employees.

  • Streamline the procedures of your company. Are any jobs being duplicated? Be more productive with less effort.

  • Increase training. Can more than one person be trained to handle the same job? Then you have a backup in case of illness or an employee leaving the company.

  • Reach new markets with new uses for the same products you produce now. Arm & Hammer Baking Soda is a cooking product, toothpaste, drain cleaner, cat box freshener, cleaner and it keeps smells at bay in your refrigerator. Find other markets for the new uses of your products.

  • In some cases you can expand cheaply by taking over part or all of the space next to you.

  • This is the least expensive and most popular way to expand a small retail business. Find out whose leaving your center and negotiate a new lease for the new space.

  • License your products or services to others. You'll receive a royalty payment for each product sold or service performed.

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    The Last Word On Small Business Expansion

    Growth isn't for everyone. Some owners are content with a "mom and pop" image and will never have anything else. Others want to be the next Microsoft. Expansion can be tricky.

    Expand to quickly or too much and increased expenses overwhelm the business. Expand to late and your customer base has been so deleted by your competitors that you don't have enough business.

    As we come up on the new millennium it's the perfect time to sit back and evaluate where you want your business to go in the coming year.

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