Expanding a business: 8 steps to ease your journey

The maxim, survival of the fittest, holds as much relevance in the business world as it does anywhere else in the world. To be the fittest or at least one of the fittest, a business must develop various attributes. Perhaps one of the most important is the ability to evolve. 

If you are a business owner, the growth and expansion of your business are the keys to its long-term sustenance. Businesses shut down every year, and a common reason is their inability to adapt to the market in the wake of competition and changing times. But then, a rampant expansion drive is of no help either. In fact, rampant expansion is recognised as one of the top six causes of why new businesses fail.

Thus, business expansion is necessary, but it should be a sustained and well-calculated exercise. Here are the steps that can help you in expanding a business more meticulously and make the expansion journey seamless.

The need for expansion

As mentioned, rampant expansion is never the answer. Instead, as a business owner, you should look for signals from your business. There must be a steady rise in the demand for your product or service. You may have noticed that your business has accumulated a loyal customer base and has been making profits for a few years. The industry you are a part of maybe ascending, or the market may be ripe for new ideas. Without these or similar signs an expansion may be premature.

How to expand
 

There are several ways your business can expand. You can aim for better penetration into the existing market or explore new customer types within the market. You can expand through the introduction of new product lines or expand vertically to cover a wider cross-section of products or services. You can explore new opportunities in uncharted geographies and/or create new products for a new market altogether. 

Risk management

Whichever mode of business expansion strategy you choose, an element of risk is attached to a new business or expansion thereof. While expanding a business, you should take care to maintain sight of your established market. The expansion drive should be kept flexible so that any changes and setbacks don't derail it later. Besides, you should make a detailed risk assessment of the business expansion initiative. You should identify all business risks and threats, and a mitigation plan against them should be in place. 

The expansion plan

Depending on the expansion you seek to accomplish, you must have a roadmap in place. This is where you identify the research and product development costs and assess the additional workforce needs and infrastructure required. But you must, above all, have a financial plan in place. The financial needs and sources should be identified and verified. Large corporations issue shares or corporate bonds or approach institutional investors and private equity. Smaller businesses mostly resort to loans to finance their expansion drive. IDFC FIRST Bank offers business loans of up to Rs 1 crore to self-employed individuals and businesses demonstrating strong business growth prospects.

Expansion budgeting

It will detail the cost of the expansion, what it achieves financially, and when the business can expect to break even on the expenditures made. But first, you must look at your existing business's profitability and cash flow. You must also consider existing business liabilities and inconsistencies in the cash flow and address these issues before taking up additional financial liabilities. It will be helpful to identify the major costs you plan to incur and the recurring expenses that the expansion will bring in. You should also make a conservative estimate of the income potential of the expansion.

Workforce hiring

Your business needs the right people in the right positions to translate the estimates made on a spreadsheet to reality. Expanding a business should be treated as the starting of a new business. Therefore, the business owner should be careful in choosing the workforce for the new offices and outlets. The hard work of the employees is instrumental in achieving the business expansion goals and numbers.

Infrastructure decisions

There could be many infrastructure-related decisions that you need to consider in a business expansion plan. Broadly, you will decide what to rent and buy as a part of the expansion. If you are planning on a new product, should you build a research facility or outsource it? Should you develop in-house outlets or go for the franchise model if you are planning for more retail outlets? Should you expand your production facility with heavy capital expenditure or hire a factory facility? These are examples of the various 'make or buy' decisions that will define the infrastructural set-up of your expanded business.

Competition study

Somewhere along the way, you should also keep an eye on what your competitor is doing. It can also be a part of the feasibility study during the expansion planning. For instance, all the expenditure made to open a new outlet in a locality would be futile if a popular competitor is operating in the same area. If you launch a new product, the marketing efforts should highlight its USP. Otherwise, similar products by competitors will not allow your product to gain a foothold in the market share. Instances of successful businesses like Starbucks's Australian misadventure and eBay's struggle in China were primarily because these companies underestimated the local competition and customer preference.

To sum up

If you see promising growth signs in your business, you should not rest on your laurels. Expanding a business will keep you busy, but it will increase the company's financial worth. With higher revenue, you will have larger cash reserves, which will help the business bravely face difficult situations. While expanding a business, IDFC FIRST Bank Business Loans can be the perfect fit. You can avail of a business loan of up to Rs 50 lakhs quickly based on your GST return or your current account statement. With up to 4 years of loan tenure, repaying an IDFC FIRST Bank business loan is relatively convenient. Not just sole proprietors but partnerships and private companies can also apply for this loan and make their business expansion goals a reality. 

Disclaimer

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