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business expansion

Growing painsHOW CAN SMALL BUSINESSES SUCCESSFULLY MANAGE

EXPANSION? DAVE HOWELL FINDS OUT

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Start-up businesses that have established themselves will, in some cases, reach a tipping point where

they need to expand or risk stagnation. With over 90 per cent of the businesses in the UK being described as ‘small’ and the continued rise of the micro businesses - now numbering five million - is expansion even an ambition for many business owners?

The phrase ‘expand or die’ has often been used by governments and business organisations to drive growth, but many small business owners are content to maintain their status quo. However, identifying the triggers that signal your business is ready to expand is essential, as failure to recognise them could severely damage your enterprise’s ability to trade profitably.

A telltale sign is when your business becomes too busy to effectively fulfil orders and deal with day-to-day operations. When demand is constantly outstripping production and service, expansion is required.

FINGER ON THE PULSEYou should be paying close attention to how the landscape of your market is changing. Add to this what your competitors are doing and you have all the information you need to decide whether expansion is needed to maintain market share.

Nevertheless, for the legions of micro and lifestyle business owners, the ambition to expand may never exist. In some cases, cultivating the small business image can be an advantage and promotes core family values and high levels of customer service.

Emma Jones, founder of business support network Enterprise Nation, says: “One of the best things about being in business is that the choice of whether to expand is almost wholly down to you, the business owner.

“At Enterprise Nation, the majority of small businesses we see are ambitious for growth. They want to make sales, take on new people

and move into international territories. This growth drives innovation in the business and is often what keeps the business owner and team motivated.”

Darren Fell, CEO of Crunch Accounting, says: “One person doing web design from their kitchen table is just as much a business as a FTSE 100 corporation and many freelancers and contractors choose to work that way precisely because they want to work for themselves and not have a boss or employees to worry about.

“We look after businesses of one or two people that have been trading happily for years with enough profit to cover the owners’ lifestyle, but with no grand plans for world domination.”

Expansion then, isn’t the aim of every small business. Success though, may move your company into a position where it needs to expand in order to remain profitable. Being expansion averse should not be your guiding principle. Expansion can be postponed by cost savings and efficiency gains across your company, but if expansion becomes inevitable, it’s vital to approach it carefully to ensure it’s managed sensibly.

EXPORT OPPORTUNITIESGrowing a business can mean a number of things. For some businesses, growing market share is their main aim. Or perhaps developing new products or services is how they intend to grow. Exporting is also a tried and tested method of expansion.

According to research by Barclays, 82 per cent of businesses experienced a positive impact on their bottom line after two years of exporting. Beyond business growth, 87 per cent of businesses identified other benefits to exporting, including having greater confidence in the longevity of the business (44 per cent), increased productivity (37 per cent), stronger innovation (28 per cent) and a longer lifespan for their products and services (27 per cent).

Barclays says that over 80 per cent of exporters said that exporting had enabled their businesses to grow, while only 15 per cent stated that it had no impact on their bottom line. The speed of this impact on a business can vary, although it was felt by 66 per cent in the first year, suggesting the pay-off in servicing overseas customers can be rapid.

The explosive growth of some businesses, especially in the social media and technology sectors, tends to grab the headlines, but unplanned growth can come at a price.

Darren says: “If they are employing best practices and using systems that can grow with them - a good customer relationship management and financial package, for example - huge growth in orders is purely about meeting that capacity.

“However, if a business has grown in an unplanned, ad hoc way, a sudden growth spurt could mean all the systems they use need ripping out and replacing, as well as fulfilling all their new customers’ needs. This is often where people fall down.”

Expansion can, therefore, be a planned component of a business’ development road map, a by-product of market changes or the unexpected success of a new service or product. In any case, it’s important to look closely at how expansion can be achieved without placing undue strain on the core process of the business.

FLOURISH ON A BUDGETEmma points out that expansion doesn’t have to be expensive or a drain on resources: “Just as starting a business can be done on a budget, I think it’s perfectly possible to grow your business on a budget too.

“Maybe you’re expanding your company by opening a new office in a new city. Test the market first by taking space in a flexible co-working environment, as opposed to signing a 12-month lease on premises and making expensive hires. Expanding is all about taking calculated risks and that’s exactly what risk should be - calculated.”

For many small business owners, expanding their companies was never the plan. But when it becomes inevitable, they can often become resistant, as a level of control has to be relinquished.

Planning for expansion is the key to success. This doesn’t have to mean exporting. Growing your existing domestic markets can deliver growth, but be clear about your goals. This will ensure you always know where your business is going, what it will cost to get there and most, importantly, what rewards you’re likely to reap in return. MM

Planning for expansion is the key to success