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Managing through the business lifecycle: Expansion
Take a mature business to the next level.
As a seasoned business owner, you have built a deep knowledge of your customers and industry, and your company has an established customer base and vendor relationships. Many business owners at this stage are content to keep doing what they do well. But if you believe you see a big opportunity, this may also be time to consider expanding the business.
An expansion will launch your company into entirely new areas of business. You might take advantage of the relationships you've built to help you drive forward with new product lines and break into new markets. You could pursue new licensing, distribution, or franchise agreements. Or you could expand your scale and reach by acquiring other companies.
Whatever approach you choose, it will take a major commitment of both effort and money. So before you begin, ask yourself, "Am I ready to do it all over again?"
3 tips to expand your reach
Analyze your customer base. Identify new product and service opportunities based on what your customers need today, and what you expect they'll want in the future.
Do the math. Figure out what kind of an investment you're going to make over a two- or three-year period, and what kind of revenue you're going to get from it.
Gain buy-in. Get your core team involved and committed before you go in a new direction, including your spouse and family. Then talk to your employees about the venture. It's essential that everybody knows what's happening and why, but gaining perspective and feedback from others may be just as important for success.
An eye for expansion
Planning for a major expansion requires a good measure of due diligence. Consider the following questions to make sure you can expand without overreaching:
Does your business currently have the capacity to support your growth aspirations? If not, how much more will you need to build?
Do your current employees have the right skills to support your growth strategy?
What impacts on your business operations do you expect, and how will you manage them?
Have you conducted enough customer research and competitive analysis to have a data-driven basis for your need to expand? (Pay attention to your gut feeling, too.)
Is there an opportunity to grow your business internationally or purchase product overseas?
If your growth plans don’t work out, do you have a backup plan?
Financing growth: Just like starting over
Expanding your business is a lot like starting it in the first place, and the biggest concern is the same: funding. The good news is that as an established company, you're likely to have stronger credit and more options than the first time around. Funding for an expansion typically comes from one of three ways:
Tap cash flow. This may be the easiest path if you have the resources; however, few businesses can spare that much cash.
Borrow from a lender. You'll need to show a detailed plan, strong financials, and cash flow projections that demonstrate the capacity to pay it back.
Take on investors. Outside investors can provide a major infusion of cash at the risk of giving up some control.
If your plans involve borrowing, be prepared to provide details about how the money will be spent. Many loans require a specific, stated purpose.
Taking on debt and giving up equity both involve significant risks. So before you take the plunge, be sure that the payback will be worth the commitment.
Q: How can I know if expansion is a good idea?
A: Expanding your company can offer many advantages, such as dominating a market niche, capturing economies of scale, attracting and inspiring good employees, and of course building value in the business. Many entrepreneurs also simply enjoy taking on a new challenge. However, over-expanding can be risky. Consider the realistic prospects for your business, your personal commitment, and the advice of your trusted advisors before making any big decisions.
Q: How much money can I expect to borrow?
A: The amount depends on your plans, your credit, and your cash flow, among other factors. Avoid the mistake of borrowing too little, which can put stress on your operations and jeopardize your venture. Ask for the specific amount that matches your strategy.
Research and identify the most appropriate expansion approach.
Update your business plan to reflect your new strategy.
Forecast your financials to estimate your funding needs.
Line up any financing you expect to require.
Make sure everyone is ready for the change: your team, your family, and yourself.
Discover more Wells Fargo resources
Find out more about extending into new markets, strengthening your financials, and adding new products or services.
Learn more about managing through the expansion business lifecycle.