Growth is essential in small businesses. Without it, a business will stagnate, then gradually die. But uncontrolled growth can bring more problems than benefits for the organisation by placing strains on areas of the company that may not tolerate the pressure. Any decision to grow the business must have careful consideration, recognising that it will result in changes by adding to the workload of the people and the systems in the business. It would be best if you were confident that the ways you choose to grow the business are within the capacity of the business, both in the short term and once the desired growth is achieved.
The primary purpose of growth is to increase profits. If a business can generate $100,000 in profits in its present size, it should produce greater profits after a boost in sales or introducing new products. Growth is not about empire building; it’s about making more money for the business and its owners. Expand only to capitalise on opportunities that will benefit the business; expansion for its own sake has no real purpose.
Expand to create opportunities
Economies of scale are often the drivers of growth. If a business buys raw materials at a specific price, it can probably negotiate a much better price if it buys twice as much. Of course, there is a problem if a business buys twice as many raw materials and doesn’t get an equivalent uptake in sales. There would also be a problem if the business cannot achieve economies of scale through expansion.
Expand to deliver competitive advantages
By expanding successfully and gaining economies of scale, a business can become more competitive. It will adjust its pricing policies to compete with established players in new market areas and spend more on advertising and promotion against its opposition. A more significant enterprise can, in theory, invest more in creating and strengthening its customer relationships and in making itself attractive to prospects that presently buy elsewhere.
Expansion can put pressure on finances
Expanding a business takes money. Ideally, the funds will come from working capital within the business; however, often, they have to be borrowed. You need to be confident that the business can afford the expansion, and that, if funds are borrowed, the business can repay the borrowings from the higher turnover it generates.
Expansion can strain customer relationships
Some customers will be concerned about your expansion. Growth can threaten their sense of security. They may prefer your business to stay just like it is and have nothing change. You need to communicate your reasons for growth to your customers and articulate the benefits it will bring to them.
The expansion will demand more from you
The bigger the business, the more management time and energy it will require. It will place more demands on you to keep in control of the enterprise; this could mean adding more management staff or delegating some of your workload to others in the business. Growth requires a sponsor – a driver to keep the process going. Inevitably this person is the enterprise owner, and if you don’t provide for the demands it will place on you, it could create severe problems for both yourself and the organisation.
An Important Message
While every effort is made to provide valuable, helpful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents. Any suggestions should be considered carefully within your particular circumstances, as they are intended as general information only.
