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Business 101 Series

Business 101 from BankAtlantic is a weekly feature that provides you with easy and cost-efficient ways to promote your business, cut costs and increase your bottom line. If it’s good for business, it’s on Business 101!

Expanding? Read this first!

Owning a business creates a unique set of challenges, especially when experiencing rapid growth…how do you know when it's time to expand? How do you know if an expansion is right for your business? How do you avoid jeopardizing an otherwise successful enterprise during and after an expansion?

Understanding the challenges that an expansion can create is a simple way to get the issues on the table. Consider the tips below as you ponder the best course of action to take for your unique business!

1. Reassess your current business situation. A helpful first step toward gaining perspective on whether or not to expand your operation is to review your startup business plan – have you met the original goals you set for your business (a healthy profit margin, good cash flow, well-developed operational systems and so forth), or are you still working to achieve them? If your answer tends more toward the latter, then perhaps it would be better to stay the course and focus instead on slow, steady growth and increasing operational efficiency, even though you may be currently experiencing brisk sales growth.

On the other hand, if your business is stable, profitable and running efficiently, then expanding may make more sense. It’s important to remember that expanding your business is a means of accomplishing a goal, not the goal itself. Before you take the plunge, make sure you know why you want to expand and what you hope to gain from expanding.

2. Make a plan.
You’ve carefully weighed your options, done your research and decided you’re going to expand – great! Your next step is to develop an expansion plan that addresses all of the variables, including:

• financing the expansion and understanding which funding options available to you will be the best long-term fit for your business – you should also consider if the incremental profit anticipated from the expansion will generate enough cash to pay off the financing

• finding office and storage space large enough to accommodate the planned expansion (greater inventory, more employees, etc…) – is it more advantageous for you to lease or buy?

• obtaining sufficient servers, IT support, phone lines, Web site bandwidth, office and production equipment, etc.

• ensuring that your branding and messaging stay current and reflect any changes the expansion may entail

• staying ahead of the hiring curve by being able to train new employees quickly, so they can become more productive faster

While this list is far from exhaustive, your plan should incorporate solutions to these challenges, along with other factors specific to your organization.

3. Beware of expansion pitfalls!
First and foremost, make sure you have enough capital to play the “what if” game. What if your sales revenue dropped over two consecutive years – can you afford that? What if you don’t start to see a profit from your expansion by the time you calculated that you would? “What if” is a lot easier to play than “Oh, no!”

Other common mistakes to avoid include:
• overextending the company's financial resources (and depleting cash flow) to cover expanding overhead costs and unforeseen expenses related to the expansion

• expanding without adequately increasing your labor force and production capabilities to meet increased sales demand

• spreading your management team too thin to be effective

• not updating business systems and processes to reflect the impact of the expansion.

4. Take care of business first. Ironically, a thriving business can fail during the expansion process because greater priority is being given to the expansion than maintaining established business efficiencies and standards. Although a business expansion can take almost all of your effort and concentration, it is imperative that you continue to focus on delivering quality products and customer service and maintain what you’ve worked so hard to build. Your business bottom line comes first.

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