It’s one thing to start a business—it’s another to know how to expand a business. But, knowing how to expand a business is extremely important if you want to sustain your business’s success and your own financial well-being. If you fail to grow and adapt your business, you risk being left behind as the market changes or having a competitor cannibalize your business.
Business Expansion
The economy is notoriously cyclical. It expanded forcefully in the 1990s reaching a peak growth of 7.3 percent in the fourth quarter (Q4) of 1999. Growth then dipped to 1 percent in the Q1 of 2000 and hit a negative growth rate of − 0.5 percent by Q3 of that year. Growth remained anemic until late 2003 but has not, since, matched "irrational exuberance" as Alan Greenspan, the outgoing Chairman of the Federal Reserve, labeled market behavior late in 1996. Expansions and contractions are thus a normal part of economic life; most businesses expand in good times and contract somewhat in bad. Not surprisingly, a look at business literature for the late 1990s shows scores of articles dealing with the "problems of expansion" and how to deal with them. In 2005 and 2006, such articles were conspicuous by absence. Instead, here and there, an article appeared suggesting how a business might plan to trigger its own growth.
Business expansion thus has two aspects. One is planned and carefully managed expansion at the business owner’s initiative. The other, which can be much more problematical, is sudden and involuntary expansion that simply happens for various reasons — among them economic expansion or simply because the business caught the market’s eye with a novel product or service. Careful management of such good fortune may be even more vital than planned growth. Somewhat surprisingly for the layman, the Small Business Administration lists "unexpected growth" as one of 10 causes of business failure. Expansion carries risks, whether it is planned or involuntary.
A business plan for a new employee in a new market
Analyzing a new region or a new employee is very similar to starting a new business. You use the same business plan components you used when starting your business when planning for and making these other major business decisions.
For example, I was the Program Manager for a group of investment advisors at a financial institution that had banking branches in a rapidly growing region. One of my advisors in another region was simultaneously servicing their own region along with this one. I needed to determine whether we could profitably hire an additional advisor to properly manage this emerging marker to allow the current advisor more time to manage their own.
By walking through a business plan outline, it helped me research the market, identify the characteristics of a target candidate, and calculate the financial feasibility of placing an advisor in the market. To be honest, the plan showed we had limited opportunities.
How Much Does It Cost to Expand a Business?
The cost of expanding a business will depend largely on the type of business you have and the scope of your expansion plans. For example, it can be especially costly to expand your product offerings or acquire an existing business. On the other hand, launching an ecommerce website or expanding your existing market can be lower-cost expansion techniques. Regardless of which approach you utilize to expand your business, you may find you need some help with financing to cover the up-front costs. Here are some business expansion loans to consider:
Term Loan
A traditional term loan is suitable for a wide range of businesses. With this type of loan, you are lent a set amount upfront, which you pay back (along with interest and fees) over a set period of time. Term loans work for general working capital needs, renovations, inventory investments, workforce investments, and so on. However, to qualify you’ll need a minimum credit score of around 620 and at least $100,000 in annual revenue. Interest rates can be anywhere between 7% and 30%, and loan amounts can be up to $500,000.
SBA Loan
An SBA loan is a government-guaranteed, long-term funding option made by lenders approved by the Small Business Administration (SBA). These loans can be used for a wide range of business purposes, including expansion, and boast low interest rates and long repayment terms.
There are two types of SBA loans you can qualify for: One for larger borrowing needs up to $5 million and one for smaller needs up to $350,000. Note that you need a credit score of at least 650 to qualify for an SBA loan, and the process can take a considerable amount of time, so this is not the right expansion loan for everyone.
Equipment Financing
If your expansion requires new equipment, then equipment financing may be the loan option for you. With equipment financing, the lender will front you the cash you need to purchase your new equipment outright. You then pay back the total amount lent, plus fees, for a set period of time. This is typically an easier loan to qualify for since the equipment you buy is used as collateral if you default on the loan.
Sources:
https://www.encyclopedia.com/social-sciences-and-law/economics-business-and-labor/businesses-and-occupations/business-expansion
https://articles.bplans.com/how-to-plan-a-business-expansion/
https://www.fundera.com/blog/10-indicators-time-to-expand-your-business