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When to expand a business and how much you’ll need


expand your business

If you’re a business owner with dreams of growth, it can sometimes be hard to know when is the right time to expand your business. Perhaps you’ve seen a new opportunity in the marketplace or want to grow your brand overseas. One thing’s for certain: planning is crucial to the success of any plan to expand.

If you’re not sure whether your business is ready to expand, ask yourself the following questions:

  • Is your current business model successful?
  • Is your target market and the economy performing well?
  • Is your business able to operate in multiple markets?
  • Do you have infrastructure in place to cope with new pressures?
  • Do your expansion plans fit in with your future goals?
  • Do you have enough finance to support expansion?

If you’ve answered yes to any of these questions, it may be a good time to expand. But with so many different ways to expand, which option is right for your business?

 

Open a new location

Opening a new location can create new possibilities for your business. You’ll reach new customers and increase your brand awareness, while potentially saving on the cost of opening a completely new business. You may choose to open a new location in a different neighbourhood, town, or even in a new country. No matter where you decide to open, it’s wise to undertake market research before opening to understand whether there is enough interest in your business to warrant opening in that location. If one of your goals is to create a chain of businesses, this step is the first in reaching that goal.

Costs to consider

Costs can add up quickly, depending on the nature of your business and the new location. When budgeting for a new location, you’ll need to consider not just the cost of the physical premises, including rent and utilities, but the cost of performing market research, hiring new staff, renovating the location to suit your needs, and purchasing inventory. If you open a location in a new country, bear in mind you may need to pay to translate your brand and hire staff with skills in that language.

 

Franchise, licence, or white label

If you’d like to expand your business without managing an entirely new location, you might consider franchising. Franchising can be an excellent way to bring support and experience into your company without paying a salary for someone to manage your new location. This option requires you to have completely established your brand so that franchisees adhere to your business model. Clear guidelines will need to be communicated to franchisees.

Alternatively, you may decide to license your brand. This is a good option for business owners who have a well-known brand and are comfortable with it being used by other companies.Licensing your brand can increase your profits through royalties without incurring new overheads, such as manufacturing costs for a new product line. You may also be able to increase your brand recognition through the increased number of products and services created by your licensees. It can be an easy way of diversifying your business, but it is important to ensure the contracts are agreed in a way that protects the integrity of your brand’s identity and your business’s reputation. Due diligence is crucial in negotiating contracts to ensure you get the most benefit out of your licence.

White labelling is similar to licensing in that it is a B2B service, but instead of licensing your brand you are licensing your product and allowing other companies to put their own branding on it. You can white label almost anything, from clothing to mobile apps. You’ll need to test your product thoroughly to ensure it is ready for reselling and build ongoing relationships with your resellers, but you may save on the cost of marketing your own products.

Costs to consider

Contracts are key to franchising, licensing, and white labelling, so you may incur a number of legal fees if you pursue any of these options. You’ll need to present your business and recruit franchisees, supporting them as they set up their franchise while providing operations manuals, marketing materials, and other documents. You might even need to hire staff solely to deal with the franchise side of the business. Franchises may not be immediately profitable, so keep this in mind when analysing your cash flow. Depending on your business, you may need to sell products to your franchise, and while some franchisors sell them at a mark-up, you could still experience delays between purchasing the inventory and receiving payment from the franchise.

 

Sell more of your products

It sounds obvious, but selling more of your current product or service can take some creative thinking. If you normally sell to retail customers, consider selling to wholesalers. Focus on educating your target market on the benefits and uses of your product, finding new ways of using it to reach more customers. Demoing or offering trials of your product can also be a way of getting new customers while building a database of customers to contact once the trial is complete. If you aren’t already, try selling to your local community, including nearby businesses, for a quick way to reach customers. You can also sell more of your products by taking them online, selling them in an online marketplace or promoting them online. If you’re lucky, your product might be picked up by a well-known blogger or a celebrity who is willing to promote your product.

Costs to consider

To reach new customers, you may need to increase your marketing budget or start a new marketing campaign, which could be costly. If you demo your product you’ll need to pay for someone to show your product, and if you give out samples you’ll have to purchase inventory and expect a loss on what you give away if the new sales don’t make up for the samples. You’ll want to ensure that your company is able to meet demand if you increase your sales activities and see a sudden spike in orders. As with opening in a new location, if you sell online outside of your current country you might need to hire staff who speak that country’s language or translate your goods, as well as abide by that country’s import regulations. Understanding the return on investment you can achieve is critical.

 

Diversify your business

Markets can change quickly, and what’s popular one day can be obsolete the next (and sometimes become popular once again). Diversifying your business can reduce the impact of a being overly reliant on a single product or service.

Adding a new product or service to your business can benefit you in a number of ways. If you offer a service, consider whether there are ways to turn it into a product, and vice versa. You can sell to different audiences who might be interested in purchasing a number of your products. If you have more than one product or service, cross-selling and up-selling to your current customer base is an easy way of making more sales without having to look for new customers. Look for products that complement the ones you already offer to make selling multiple products effortless, such as an add-on to a service or a product accessory. You might also consider offering classes; if you own a bakery, for example, you might teach cake-decorating classes. You could also make your company a one-stop shop for your customers’ needs.

Reassess your goals for the business when adding new products; will these products take you in the direction you want to go in? If not, ask yourself if you’re willing to adapt your business model in order to capitalise on a new idea. Do you want to market new products to your existing clients or new products to new customers? Your new product will need to be unique or competitive in order to succeed.

Costs to consider

If you add a new product or service to your business, you may have a range of new expenses to consider. Market research and trial products are factors to consider. If you’re adding a new product, consider any manufacturing, inventory purchasing, branding, and packaging costs. If you’re adding a new service, you may be adding a need for more staff and potentially managers. Marketing your new product can add costs to your budget, and depending on your product, you may need to seek out a different customer base.

 

Partner, merge, or acquire

Each of these three options gives you nearly instant access to a wealth of knowledge and an existing customer base. Partnering with another company allows you to retain your business’s as a separate identity while sharing or referring customers with your partner. A business merger can improve your economies of scale, diversify your business, and open up new markets. Acquiring a business is not only a good way to increase your assets and products, but also reduces the number of your competitors.

Costs to consider

These options are both potentially lucrative and potentially costly. They can require a lot of legal groundwork and preparation, and if you aren’t careful about communicating clear expectations or undertake due diligence thoroughly, you may encounter both internal and financial problems once the paperwork is complete.

 

How to finance your plans for expansion

There are a number of options for funding your expansion plans; you might raise finance through a bank, invoice financing, or alternative finance. It’s important to form your growth plan with a financial advisor in terms of both the capital investment required and the resultant cash flow model to properly assess the investment you will need to make.

LendingCrowd offers peer-to-peer loans starting from £5,000 up to £250,000, and we will consider larger loans. Contact our Credit Team at 0131 564 1610 or contactus@lendingcrowd.com today to learn how we can help you expand your business!

 

expand your business

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Erika Borys

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