Things To Consider When Expanding Your Business

Posted by Aloisio Lorenzo in Financial Services | Leave a comment

Expending your business cannot be done hastily. You need to clearly think it through, weigh out the possibilities and then make a decision. Opening up one or two more stores simply out of the blue will put you in a lot of trouble if you have not properly planned the process. It is absolutely incorrect to think that more stores means more profit since if the operations, financials and other factors don’t work right, you will incur massive losses, not just in terms of money but also in time and effort. So here are some important things to consider before you expand.

Can you finance the expansion?

You need to first be sure if the expansion will give you monetary benefits in future. Use advances forecasting techniques to ensure your venture will be successful. Next, look if you can finance the project internally. Talk to your financial planner St Leonards and check on funds that are currently available to you internally, and the amount that needs to be taken externally such as bank loans. Compare many options in the market and select the one you can afford. Many small businesses drastically fail due to careless expansion and drowning in debt before they even know it. So be wise and expand only when you think you can handle the financial pressure.

Customer demand

You need to be sure that you have identified a proper set of target customers, and that they are willing to purchase the products. This might not work if the economy is facing a downturn. During a recession or economic depression, people will not have enough money to spend on many products so they will stick to the necessities only. So if the demand reduces, you will have inventory that will remain in the store unused for days. Talk to your financial advisor on the current economic condition and regarding the feasibility of going ahead with the expansion. A favourable business environment will of course be favourable to the business.

Beneficial economies of scale

As you increase the number of units produced, your fixed costs will be divided among more units, bringing the unit costs down. Also, since you will be buying raw materials in large quantities, you will surely get discounts on prices. If you do have such a large capacity, then it is no harm venturing out into new businesses. With your low prices, you will be able to sell more units than your competitors. Also, most costs can be used commonly for all ventures such as cleaning costs, transportation, marketing and advertising etc.

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