Business Insider

C. Norman Beckert: 7 points to consider before expanding business

Sales have been increasing, profits are looking good, you need more space to keep up with the business you have, you are working a lot of hours and could use some help, and your market analysis suggests there’s additional or new business you can gain. Another possibility is acquiring an existing business.

Let’s see if the following discussion might help with your decision.

1. Sources of new business: Is the new business potential derived from existing customers, or will you need to develop and implement a marketing plan to build the business? If it’s from existing customers, assess the amount of business dependent on just a few accounts. The loss of a key account could have a dramatic impact on your growth plan. Overall, growth arising from current customers is a plus. Is the growth coming from your general market or will it come from entering a new market? A new market carries additional risk.

2. Buying a business: An article in the Dec. 11, 2012 Business Insider discussed eight considerations when buying a business. Key points included: look at capacity — the assets available and the investment necessary to generate growth; location, location, location; and will the products and services offer a distinctive advantage in the marketplace?

3. Energy level: Do you have the energy and drive to take on the challenge of adding enough new business to again reach the profit margins you have currently?

4. Finances: Do you have sufficient funds to invest in business growth? You may need a loan. Is your current business sufficiently profitable to allow you to qualify for a loan?

5. Time: By devoting time to growing the business, will you be able to provide the level of service demanded or expected by your current customers? Estimate the time it will take to reach break-even. It could take two years or more.

6. Market research: It takes more than an assumption that market growth is available. Are you entrenched in your current market and have a specific niche? Have you investigated the growth potential of your industry?

7. Employees: Will your employees support an expansion? Expansion may require additional time commitments and increased responsibility. Are they willing to assist in your endeavor, and might there be a monetary acknowledgement of their efforts? Will you need additional employees?

I like the idea of using a scorecard and rating the issues. Use a 1 to 5 score for each category, but also decide and rate the categories by their relative importance. If the composite score is greater than 50 percent positive for most if not all the categories then I’m for moving forward with your expansion plan.

One remaining bit of advice: Present and defend your findings to a trusted adviser. You will benefit from an objective review.