Business expansion: what to evaluate before making this decision
Is it the proper time to expand your business? This may be the “one million dollar question” for many businesses worldwide.
We hope to facilitate that decision and encourage you to make the best choice regarding your business expansion process.
Naturally, you have the mission to make the right decisions for the success of your company.
Expanding a business is a risky process that can generate problems if not planned correctly, but also bring huge rewards.
It is essential to ask yourself the right questions::
- Is it the right time to expand?
- What are the most important aspects to evaluate before making this decision?
- How can negative surprises and unnecessary risks be mitigated?
In order to evaluate whether it is the right timing for an expansion or not, there are indicators that can be used to support this decision. Here is a selection of some of them:
Key indicators for the right time of expansion
1. Income in the last three years
As a rule of thumb, your company’s revenue and profit should be evaluated, taking into account – at least – the past three years.
By doing so, it is possible to mitigate factors, such as seasonalities.
Expanding often means the new entity will need time to break even, and you will need to finance the new endeavor at the start. You need to make sure your “war-chest” is filled in case of eventualities.
2. Warm markets
Through feasibility- and market studies, it can be verified if your company’s target market is behaving in a way that will bring you advantages and opportunities.
If confirmed, this becomes a powerful indication that by expanding your business you will get excellent results.
If not confirmed, this may save you from expanding to the wrong market, allowing you to focus elsewhere.
For example, the technology sector (specifically the server market), is expected to show a year of strong recovery, with global revenue increasing $6.6 billion in one year. By 2025, the entire market is expected to grow another 18% (that is, $91 billion), therefore hinting at significant opportunity.
3. Long-distance demand
Should demand for your product exist outside your core geographical market – a common scenario being one that potential customers from other geographical regions have shown interest, this is an excellent indication that there is room for expansion.
Apart from the above mentioned, you should also consider further internal factors:
4. A bigger team
Expanding your business implies new demands and challenges. Any team involved needs to be fine-tuned to the local market and culture, besides possessing the necessary skills and taking over new responsibilities.
You need to assure they are the correct team to assure the success of the new endeavor.
5. Financial balance
Everyone knows that expanding operations requires financial resources. Therefore, your company must have the financial area well structured and, as mentioned before, be aware that profitability can take a while to be achieved.
Hence, it is prudent to allocate or even raise funds for your company to be able to last long enough until the new entity runs at a profit and does not run out of steam because you lack the funds to back marketing and sales efforts.
Having considered these factors, it is time to start expanding the business.
A straightforward SWOT analysis could help you gain the necessary results, since it allows you to evaluate the strengths and weaknesses of your business, in addition to the opportunities and threats for the specific scenario.
Clearing the way for expansion with SWOT analysis
Some specific questions can make the expansion path clearer.
These questions are related to strengths and weaknesses, market opportunities, and threats.
Below is a simple list of sample questions to consider.
- What are the competitive advantages of your company?
- Would the competitive advantage be lost in certain geographic regions (e.g. if they require great infrastructure for delivery, some developing countries could disqualify themselves)?
- What are the other main differences concerning competition?
- What could the company do better to achieve results?
- Does your company rely on an excessive workforce?
- What activities need to be improved that put you at a disadvantage in the considered market?
- What are the existing opportunities for the sector we are analyzing that specifically fit our strengths?
- What are its trends?
- Who are the future customers, their consumption habits, and values?
- What obstacles, legal or structural, are there?
- Who are the competitors and what are their strategies?
- Do local and/or global competitors pose any threat?
In this sense, you can assess in-depth the step in which your company finds itself, allowing you to make this challenging decision.
If you would like to acquire further information or to talk to one of our business consultants, feel free to contact us by filling in the contact form on our website.