“Should I grow my business?” is an important question to ask. Growth and expansion are goals for most small business owners. But expanding your operations during the coronavirus shut down may be more challenging than expected.
Expansion might be an excellent strategy for business owners. However, expansion can crunch cash flow if you hire additional employees, add products or services, or receive outside funding. With this guide, you’ll learn details of when it’s an optimum time to put expansion plans in place.
What is business expansion?
Business expansion is a strategy where you use targeted strategies to grow. To know when the optimum time is to expand a business, consider the following factors. If several are true of your business, it may be time to branch out.
Why consider expanding a business?
Growing your operations is particularly important these days. There are a number of competing brands and services increasing across virtually every industry. Your competitors may be pivoting due to the economic crisis and you want to stay top of mind for current and potential customers.
7 signs business expansion is a good idea
1. Your industry or market is growing
Gauge the growth of your industry. For example, home delivery services, fitness equipment companies, and telehealth providers are experiencing dramatic up-ticks in business during the COVID-19 shutdown. Do a competitive analysis of other businesses to determine if your industry is ripe for expansion.
2. Your cash flow is steady and positive
Do an in-depth analysis your cash flow to determine if you have the funds needed to support growth initiatives. If not, a low-cost business loan can provide the capital you need to strengthen your business. Our post, Solving Small Business Cash Flow Issues Due to Coronavirus, helps you discover where you stand and suggests expenses you can reduce or eliminate to shore up cash flow. If your cash flow isn’t where it needs to be, these steps can guide you even during tough times.
3. Your business was profitable for over three years
A recent spike in profits is great news. However, those numbers don’t necessarily mean you’re ready to jump into expansion activities. Steady profits over time will put you in a stronger position.
4. You have a loyal consumer base
Customer loyalty measures how likely existing customers are to do repeat business with your company. Loyal customers will consistently buy your products regardless if they are on sale or not and recommend you to friends and family. Keeping this audience large enough is an indicator that the time may be right for expansion.
There are several other benefits associated with having loyal customers that will aid in expansion, including positive online reviews and free word-of-mouth advertising. Here are five simple ways to build customer loyalty if you’re lacking in that area: 5 Simple Ways to Build Customer Loyalty. Strategies include loyalty programs and asking for customer feedback.
5. You see a demand for related products or services
The coronavirus pandemic and economic crisis has greatly affected small businesses. Some are seeing a spike and demand for related products and services. It’s easy to understand why consumers are clamoring for restaurant home delivery services or online fitness classes. However, even if you’re not associated with one of the current demands, you can assess if your customer base would be interested in products or services related to your unique business during this time. One way to gauge this is to simply ask your customers through a short online survey or in-person interview. Look to your competitors in the industry to see how they are enhancing their offerings.
6. You have more business than you can manage at the moment
Having lots of business is great – unless you don’t have the infrastructure to support it. It might be time to purchase more inventory, hire employees, or beef up your business software. You don’t want customers to feel like your business is slacking off. Keep customer service top-of-mind before – and after – you expand.
7. You have a strong team of employees
Take a look at your current employee’s capacity to handle business operations to evaluate if the time is right to hire more support. The best way to get a handle on employee load is to simply speak directly with them. Talking with managers who oversee workflow offers valuable information as well. It’s an indication that the time might be ripe for expansion if employees are unable to take on new projects or are struggling to manage their current workload.
How Much Does It Cost to Expand a Business?
Costs for expansion depend on many variables including your industry and your financial plans. It’s a good idea to check with your accountant or another small business financial professional to discuss the cost and how it will impact your overall operations.
Funding Options for Expansion
Most expanding businesses need outside capital to reach their goals. Here are a few affordable options for businesses owners exploring growth.
Bank Term loan
A Bank Term loan is typically a short-term, fixed-rate loan with stable monthly payments. These loans are a great fit when you need funds quickly and want to lock in your interest rate.
Proceeds from a Bank term loan can be used in a variety of ways to help you expand. Typically, funds can be used for working capital, debt refinance, new equipment purchase, and more. Additionally, paying off a Bank Term loan responsibly helps to build business credit. Learn more about Bank Term loans available from banks in the SmartBiz Loans network: Bank Term Loans.
You might have heard SBA loans are the gold standard for small business owners who want to expand. It’s true. Funds from these loans can be used in a multitude of ways to help a business. As a result of the CARES Act, the SBA will pay 6 months of principal, interest, and any associated fees on any eligible SBA 7(a) loan disbursed prior to September 27, 2020. Note that strong credit scores and steady revenue are a requirement to qualify: All About SBA Loans.
As the name suggests, an equipment loan is a form of small business financing that is used specifically for equipment purchases. If you don’t want to purchase an item upfront, you can use the funds from the loan to expense the cost and then repay the principal over a longer period of time. That way, you can divide up the cost into more manageable payments.
You’ll receive a lump sum in your business account that requires repayment on a regular basis, typically monthly. The cost of borrowing funds will depend on the amount, APR, and term length. To determine your monthly payment, you’ll need to be clear on all associated rates, fees, and obligations: Equipment Financing: How to Get It.