5 Tips for a Successful Business Expansion

Business growth is generally seen as a good thing ripe with opportunity, but it also usually requires working capital to make it happen. For example, an expansion project often involves:

• Additional space
• Additional staff
• Additional equipment
• Additional inventory
• Additional marketing

Before you get started on plans to expand your business, there are several steps experts recommend to properly prepare for an effective expansion. Your banker or potential investor will want to know you took these steps seriously and may even ask for data supporting your conclusions. 

Below are five ways to improve your chances of obtaining financing from a bank or investor. Luckily, these same tips will help your expansion project succeed overall, as well.

• Examine your business model. One important question to ask yourself is how your business operates when you’re not around. If your presence is essential to business operations, be prudent about expanding. You can only be in one place at a time. If your business revolves around you, perhaps making less dramatic changes to the existing business model would be a better use of capital – and possibly more profitable with less risk. For example, consider starting to document processes to prepare for delegating some tasks to an assistant. Or investigate technologies or software that could automate some things you currently do manually.
• Analyze the opportunity. It is quite common to initiate a business expansion upon signing a new customer or contract. Before taking grand steps to scale up, think about whether this is a short-term bump in business or a long-term change. If this is a one-time opportunity, explore ways you might be able to rent equipment or add a second – or third – shift to better utilize existing resources for a limited term contract.
• Make projections. Before asking a bank or investor for money, you need to determine how much capital it will take to expand operations. Start by projecting the costs associated with the business or building expansion plus the ongoing costs of the expanded operations. Completing a breakeven analysis will help you identify how much business you will need before the expansion becomes profitable and eventually pays for itself. Creating projections also allows you to monitor your progress and make informed adjustments in a timely manner. Likewise, if you accurately projected reduced revenue, increased costs, or an actual operating loss for certain periods, you can avoid panic when it happens.
• Organize your finances. It is quite common among startups and young companies to learn-as-you-go with their business accounting. Now is a very good time to clean up your financial records. Most importantly, you need good information in order to make the most informed decision about expansion. Are you collecting and tracking all the data you need? Complete and accurate financial information will enable you to show an investor or bank how you plan to repay their contribution.
• Check your credit. As a business owner, you should always be working to keep your credit ratings in tip top shape. Do some due diligence on yourself and your company prior to seeking investor or lender financing to confirm that the information reflected in both your personal credit listing and any business reports is accurate and complete.

By clearly demonstrating your business knowledge and organizational strategies, lenders and investors are more likely to feel confident in making an investment in your business growth. And more importantly, your current growth will lead to ongoing success for you and your organization for years to come.

For more information about growing your business, including financing your business expansion, contact your friendly business banker at Lake Ridge Bank. We are here to help.