Once you have overcome the many hurdles involved with starting your own business and begin to build a comfortable living for yourself, the decision to stick or twist and expand your business will hang over you every day. The risk associated with expansion is always the biggest factor to consider, especially when your business may be considered a “lifestyle” one. If your business is the income stream that supports your family, expansion may be the last thing you want to do. However there are ways you can expand your business without putting too much at stake:
1. Acquisition | Risk Level: Medium-High
Purchasing another business (complimentary or competitor) is one of the quickest growth strategies available and can generate significant ROI. Depending on the type of business you are looking to acquire, acquisition can be the most cost effective strategy long term e.g. purchasing a business with expertise or a developed skill set could be cheaper than developing in-house (e.g. Apple’s acquisition of Beats). The acquisition of an existing customer base, skill set, assets and an established brand brings with it both tangible and intangible value. Once acquired, you can restructure and adapt to suit your existing business strategy and either select which brand to use moving forward or alternatively re-brand. Your new staff will usually pose the biggest hurdle, merging teams and transitioning staff into a new way of working takes time and excellent internal communication.
2. Branching Out | Risk Level: Low-Medium
Depending on your business’s sector, market conditions and customer base, it may be a financially worthwhile to open multiple office, branch or shop locations. This can give you access to new pool of potential customers and allow you to boost the local community through job creation. One of the downsides to this expansion strategy is that it can take time for a new location to become established and be profitable. There is a risk that if all elements (new location, staff, products) do not align or are not consistent with your existing business strategy, market trends or customer expectations then ‘branching out’ can potentially devalue your business and brand name. The potential risk is softened only by the fact you may be able to recoup the majority of funds invested by disposing of the new premises (if new location is purchased and not rented) as long as its value has not fallen since purchase.
3. Diversification | Risk Level: Low-High
Diversification can be as risky and as complicated as you choose it to be. Whether you decide to launch a complimentary product or service or enter a new market entirely – market, competitor and trend analysis are the key to shareholders ability to make an informed decision. This type of expansion strategy requires sufficient resource, timeframe and investment in varying quantities depending on the extent of diversification away from your core offering. Although a positive ROI can be achieved, the initial outlay can be great – you may also be eligible to claim research and development tax credits and subsidise the cost of the project.
4. Digitalise | Risk Level: Low
If your business is not already operating online, now is the time. The move to mass digitisation and popularity of online consumerism has revolutionised the way people both buy and sell products and services worldwide.
Goods based businesses that trade via ecommerce websites, can utilise the sophisticated tracking and analysis features (e.g. cookies, google webmaster tools, google analytics) to gain a better understanding of the ways its customers interact and respond to the business offering. For example, an online shoe retailer advertises on a large search engine, a user searches for shoes and clicks on a link to your website. You can analyse the user’s purchase behaviour by looking at what pages the user views on your website and how close they were to making a purchase. This can be done utilising cookies, which hold an anonymous snippet of data for 30 days that can save individual user information to use for future marketing purposes, e.g. remarketing.
The cost to establish an online presence for your business can adapt to your budget – a small business owner can set up a basic website and social media channels for less than £200, if they purchase an off-the-shelf website package and DIY social media. On the other hand, some business owners who either operate solely via a website or are passionate about the value of online trading can invest vast sums to build and maintain their online presence.
There are risks associated with investing online, which include: poor targeting or a poor quality unresponsive website, fierce competition, constantly changing consumer demands, frequent technological updates and expensive maintenance costs. Take for example your search engine presence, the algorithm that calculates what results are returned to the user adapts so often that money invested in SEO needs to be carefully calculated and consistent – if not your investment can fall by the wayside extremely quickly.
5. Referrals | Risk Level: Low
Building business contacts and strategic alliances is an organic process which will naturally occur as your business becomes more established. On occasion you may find that work comes your way that is not within your realms of expertise. If you refer the work out to the right professional, they will usually agree to give you a percentage cut for referring them the work, also known as a kick back. It can also work both ways, by giving another business work they may reciprocate the favour and you can soon find yourself building your customer base through quality referrals.
6. Grow your existing business | Risk Level: Low
Perhaps you just want to expand the product or service you already offer but you don’t want to invest your business or personal savings to do so. You can look to raise finance from a range of investors if you can prove that they will see a return on their investment. Investors will usually look first at the business itself and the quality of the staff and resources held by the business, before looking at the actual figures. Think about the offers carefully, you might be able to negotiate the interest down and get yourself the best possible deal.
Outline to potential investors where their investment is going to go and be confident about your rationale for the allocation of their funds. Whether the investment is for marketing, recruitment, resources or premises – investors are usually happier to offer lower interest rates to existing businesses that are stable with a proven track record as opposed to start-ups that are a lot riskier.
The Next Step
If you can envisage your business expanding by one of these methods, our qualified business advisers are on hand to give their advice. Get in touch and book your free initial meeting by calling your local office or sending an enquiry on www.astonshaw.co.uk/contact-us