We’ve had our business for a while and the business is doing great- what are our next steps?
Expansion
• How do we go about this?
• When is the best time to do this?
• Should it be organic growth or do we acquire another business?
• Do we stay with our core business or diversify?
Expanding your business can be a very exciting time but also open to many pitfalls
• What happens if we expand too quickly?
• How do we ensure that we have enough working capital?
• How do we know when is the best time to take on new staff and equipment to facilitate the expansion process?
Some of the key criteria will be: budgets and cash flow – yes you can have a very profitable company but if you do not map out your plan for the future, and your cash flow cannot keep up with your expansion you are doomed to failure.
How do we avoid this happening and set ourselves up so we are in the best possible position?
Budgeting
Yes, most managers hate budgets – but used correctly a budget is a great tool to help guide you through the down times and ensure you reap the benefits when business picks up.
As an example, a 12-month budget will help you ascertain where the peaks and troughs are for your business life cycle. This can then be turned into a rolling budget, allowing you to have 12 months budgeted always. By comparing your actual to budget figures monthly, you will begin to see how far off the mark you are. Having a close budget to actual scenario is a clear indicator of knowing very well your business.
So now you have a good idea of your trading year – including the highs and lows. Now get ready to use this budget to help plan for your expansion. Note that creating several budgets that take into consideration diverse scenarios can help you build a clear picture of what you want for the future of a company, for instance;
• Acquiring another business will give you that instant hit of expansion but will also be costly as you will be paying for this upfront.
• Incorporating organic growth into your budget will allow you to grow at your own pace but will take longer to reap the benefits of the expansion
If you are diversifying, then you can change your business model. If your revenue targets are not as you envisaged – work out your break even point. Ascertain which areas are trading well and which require improvement. Calculate when you need to bring in more staff or buy that equipment.
Keep tuned for our next blog and understand why cash flows are important and how to work around them through the expansion of your business.
