One of the most important considerations when it comes to whether or not a small business should expand is the potential return on investment (ROI). It is important to look at the costs associated with expansion and compare them to the potential revenue that could be generated. A break-even analysis can be used to determine how much an expansion would need to bring in before it starts becoming profitable. Additionally, a three- and five-year forecast and budget should also be created in order to help evaluate the long-term profitability of an expansion.
Another key element to consider when expanding a small business is its level of debt. Generally speaking, lenders are more likely to extend lines of credit for businesses that have a solid financial record, rather than for ones that are just starting out or have had recent losses. Therefore, if your business has built up a good amount of savings and has low levels of debt, it may be a better time for an expansion.
Once you have an understanding of the financial implications of expanding your small business, it is important to assess if there is a need for growth. Analyze your current customer base and market trends in order to determine whether or not expanding will increase sales and profits. Consider if there are other ways that you can fulfill customer needs without investing in expansion. Finally, evaluate whether or not your current resources are sufficient enough to support an expanded version of your business.
It’s important to assess whether or not your current staff can handle the additional workload associated with growth; if not, hiring new employees may be necessary. Additionally, you should consider whether or not you have enough resources available—such as physical space or technology—to support increased operations before making any decision about expanding your small business.
Not sure if you should expand? If your current annual revenue is at least $1.5M then schedule a free call with us. We'll take a look at your cash flow outlook and give you our honest opinion as to whether we think you should expand. Schedule a call here.