Expanding Your Small Business…Good Idea or Bad Idea

A few months ago I was hanging out with some of my friends having a couple of beers and shooting the breeze.  I’m not quite sure how this happened, it certainly wasn’t intentional, but I have a lot of friends who are small business owners. So like usual our conversation turned to business, with each of us talking about what we were currently up to.

One of my friends, we’ll call him Bob, owns a pretty successful restaurant. Bob’s restaurant has been in operation for a couple of years now and is making a modest profit. He’s extremely happy with how everything has turned out and that his restaurant idea turned out to be a success.

At some point one of us brought up the topic of expansion to Bob. We asked him if he had ever thought about adding more locations to his business. It seemed that everyone in the group thought it would be a good idea, that it would mean more money for Bob, if he opened another location or two.

I must admit, I was one of them that told him to expand. But after a few minutes of everyone trying to convince Bob he should go for it, it became apparent that Bob wasn’t 100% on board with the idea. He seemed extremely reluctant and I had to know why.

Bob thanked us all for our input into his business, but reminded us that none of us would be the ones taking on the additional risk. And you know what, he’s absolutely right.

Expanding your business is a highly personal decision that shouldn’t be influenced by people who are not directly involved with your business. Of course people who don’t have money tied up in your business will tell you expansion is the right thing for you. But they don’t have to take on any risk or make any commitments! Bob had certainly considered expansion and run through all the pros and cons in his own head. There were a great number of factors he weighed. No matter what business you are in, you should do careful research to figure out if expansion is right for you.

As Bob went through the factors that influenced his decision I began to think about my own business and that of my customers. If you are thinking about expanding your business I hope that you consider:

Where you’ll get the money from

How will you afford this expansion? Do you plan to pay for this out of your own pocket, with a bank loan, or by leveraging some of your businesses assets? Each of these carries financial implications that will affect your business for many years to come. You’ll need to make sure your new venture will be profitable enough to earn its keep and repay the borrowed money. One of Bob’s main worries was funding an additional location. He would have to get a loan or take on investors to fund the new venture. Either way he would be beholden to someone else for his business, which he didn’t like. Many small businesses have met untimely deaths because they chose to expand aggressively without a thought as to how they were going to repay the loan, even if it was to themselves.

How this will affect your customers

Expansion requires business owners to order more raw materials and/or products to sell. You’ll also need to buy more equipment, possibly hire employees, and add office space. Adding all this overhead requires that you either increase sales or raise prices. Both of which affects your customers. Will you pass on higher prices to your customers or put more pressure on existing customers to buy more. You need to consider how either decision will affect your customers. Will they respond positively or negatively to your expansion?

Your changing role in your business

No matter if you are entering a new market or adding a brick-and-mortar operation to your current e-commerce business, you should expect a change in the role you play. Expansion generally implies adding employees or investors to your current business. Both of which opens up the decision making process to others. If you are used to being a one-person operation, this may be a hard thing to do.  You’ll have to relinquish some control over areas of your business you formerly ran yourself. Bob was afraid opening another location would chain him to a desk where he would run the business from and take away the time he spends greeting guests, checking up on the kitchen, and being on the restaurant floor. He didn’t want to spend all his time sitting behind a desk running pay roll, ordering inventory, managing even more people at locations he couldn’t be at all the time.  If you are unwilling to hand over control to someone else or play a lesser role in certain areas, then expansion may not be the right choice for you.

Your competition

Another thing that Bob pointed out to all of us is that he hadn’t noticed many of his competitors opening new locations. He thought that it could be a sign that the timing isn’t right for expansion. This recession has been especially hard on restaurants because one of the first things to go when families start to cut back on their spending is eating out. Looking at your competitors plans for the short term and long term can be a helpful gauge for your own business. Maybe they have seen a new, untapped market that you can move in on too. Or maybe they’re afraid they’ve already saturated the market and are looking for ways to pull back rather than expand. Either way look to your competitors as a gauge of the marketplace.

How this will affect your personal life

Taking on a new business generally requires more of your time. Have you thought about where that time will be cut out from? Will you have to spend less time with your family or friends to make sure your expanded business is successful? Bob explained that he already works 50+ hours a week, barely spending enough time with his wife as is. He didn’t see how he could add another location and ever hope to have any semblance of a personal life. Make sure you take into account how expanding your business will affect the other areas of your life.

Expanding your business is a huge decision, and one that should not be made over a few beers with some buddies. It requires research into multiple areas of your business and a bunch of soul searching. Make sure that if you choose to expand it’s because it’s a smart business decision, rather than an emotional one.

Good luck!

Ethan Warrick


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