Expanding a business is adding the capital base of the enterprise with an aim of increasing revenue and profit. Some factors should be put into consideration before expanding a business to make it viable and serve the primary goal- to make a profit. It is not advisable to venture into business blindly. You should first assess the health of the business and examine whether it is ready for growth or not. For a conclusion to be made for expansion of a business, some factors should be considered.
Examining operational requirements
1- Credit availability;
After examining the environment and health of the business and finding it necessary to expand, expansion may require additional capital apart from profit. Credit is an important tool in expansion of businesses. It is advisable to evaluate the cost of credit from various lenders. Banks offer different types of credit such as cash advance, long-term loans, business credit, etc. Some lenders also train business owners to make sure they have knowledge of credit to prevent problems in future cash flows. Different lenders have different interest rates and therefore, merchants should choose those that have cheapest credit and flexibility in the mode of repaying the loans.
2- Increase in profits;
Increase in profit is a motivator for expansion of a business especially when profits consistently grow. Profits accumulation can be a source of capital for development of an enterprise. The business to be expanded should be stable otherwise expanding it would lead to business failure.
3- Need for additional employees;
Expansion might lead to additional labor. It is advisable to determine whether the business will be ready to hire new human resources and ability to meet their wages and other factors stipulated in international labor laws.
4- Examining the capital structure;
It is of great importance to determine the financiers of the business. Check the debt accrued to creditors and other investors. Creditworthiness might be a requirement to major funders and therefore, merchants should analyze their obligations and compliance to earn a better score in credit rating.
5- The legal obligation;
Business expansion might require statutory requirements. In a case of expanding a partnership business to a limited company, tax obligations differ. Merchants should evaluate whether they will be in a position to meet higher costs of business operations such as tax, registration of a company, etc. Also, a production of other products might be illegal or else require several certification to reach the consumer, which might be costly and fail the business.
6- The state of competition within the industry;
Healthy competition among business entities is legally acceptable. Merchants should evaluate the competitor’s moves to avoid business failure. If expansion is on a new line of production, it is advisable to know how other entities are doing with the same product line.
7- Scanning the environment and space;
Expansion might need extra space to accommodate a line of business. It may lead to a decision to relocate, another cautious path to follow. It will incur additional cost to relocate. The new expansion may be hazardous to the environment. Therefore, merchants should determine whether the development might violate environmental conservation rules.
Personal consideration
Apart from operational requirements, individual needs are also critical when deciding expansion of the business. Some factors should be considered too, such as;
Skills;
Merchants should determine whether they have the right skills to manage growth. Expansion might require expertise that merchant might lack and seek professional help.
Objectives of the business;
Short term and long term objectives should also be considered. Expansion can eradicate the strategies and goals of the business initially held. Therefore, expansion should be in line with initial objectives to maintain the health of an enterprise.
Time management;
Time is also a factor to consider. Expansion can lead to need for extra time if necessary.