Should You Expand Your Small Business?

Growth and expansion of small businesses across the US are poised to reach an accelerated trajectory under the Trump administration. During his presidential campaign, President Trump promised that when elected, he would institute policy changes that would stimulate the economy by supporting small businesses across the America. Specifically, President Trump promised to reduce banking regulations and cut corporate taxes in order to help these businesses access credit and lower their tax burdens. According to analysts at Saxon Trade, the ultimate goal for these policy reforms is to enable small businesses to collect enough funding to expand their operations, creating more jobs for U.S. citizens and strengthening economic growth for the country.

Within his first 100 days in the office, President Trump has shown signs of being committed to his promise to the domestic business community. So far, President Trump has signed an executive order requiring the treasury and other related government agencies to review the Dodd Frank Act and propose restructured regulations. This is meant to reduce credit limitations imposed by the bureaucratic procedures which exist under the current law. For small business owners, this comes as great news; especially for those whose growth had stagnated due to lack of access to business loans from commercial banks.

However, even as small business owners like you wait for the new policy changes to take effect so you can start injecting more capital into your venture, there are 2 key issues to consider before launching your business expansion drive.

What type of expansion is right for you?.

There are many different ways to expand your business; but not all of them are suitable for your venture depending on your available resources and your growth plans. There are two major strategies for choosing between different ways of business expansion. The first strategy is one in which you focus on your current customers, and adapt your business offerings to suit their changing demands. Under this expansion strategy, you may be required to buy new equipment, enhance your inventory, and perhaps improve on your customer service in order to retain your existing customers; all while trying to sell more products to them.

The second major expansion strategy involves focusing on the acquisition of new customers in order to enlarge your customer base. Under this strategy, you can opt to open new branches in new locations, acquire a competitor, or move into a related industry. This second growth strategy helps you to position your company for continued growth; as well as build your business value in readiness for an exit. However, the capital injection required and professional support services needed are both expensive and extensive in this case.

Will you benefit from the expansion?.

Much as attempting to expand your business comes with the obvious benefits of increased revenues, there are also other assumed risks that your business will face as it grows. It is therefore prudent to conduct a cost- benefit analysis before launching your business expansion drive. The benefits to look for before taking on new clients or providing additional services fall into three major categories: benefits accruing to economies of scale, customer base improvements, and gains you will see personally as the business owner. In terms of economies of scale, you need to assess whether your planned business expansion will result in any cost advantages to your business. Ideally, growth in your business should enable you to start buying materials in bulk and so that you can enjoy discounted prices. Additionally, due to optimum capacity utilization, your cost of production per unit output should drop when you expand your business. If these two items are not going to lead to direct gains from your business expansion, then you should consider holding on a little bit longer before expanding your business operations.

Expanding your business operations should always be in tandem with your growing customer base, in order for the additional investment to be justifiable. You will therefore need to assess whether by expanding your business you will be exposed to new customers. You can also take into consideration if your existing customers will become more loyal as you work on other growth plans.

Finally, you should assess whether you are personally ready to handle your expanded business; or will it generate undue stress that will reduce your productivity. Generally, if the benefits are more than the risks involved in expanding your business, then you should go ahead and expand your small business. Otherwise, be patient and wait until the time when you are able to enjoy economies of scale, enlarge your customer base and handle the expansion without undue stress and reduced productivity.