7 Point Checklist to Determine if You Should Expand
Over the past several years now, the American economy has been on quite the winning streak. Aside from the fact that the unemployment rate is at all-time lows - and shows no sign of ticking up any time soon - the economy just keeps on growing. Indeed, as the National Bureau of Economic Research pointed out in July 2019, we’re now living in the longest expansion the U.S. has ever seen, surpassing the previous record established in March 2001 after 120 months of uninterrupted growth.
Appropriately, with the nation’s economy’s expansion, businesses both large and small have followed suit. Indeed, according to the latest data available from the Small Business Administration, the West saw the greatest amount of establishment growth, with rural counties there seeing an average increase of 2.4% in 2018. Meanwhile, in metropolitan counties specifically, the growth rate was positive for 73% of them.
Whether you’re looking to hire more people, move to a larger facility or build an entirely new one from scratch because business is booming, expanding your business is something that just about everybody considers at one point or another. The ultimate question is whether you actually should.
The decision is yours and one you should consider very carefully. You might want to make a checklist, which can help you plan out why - or why not - growing your business makes sense. Here are a few to-do items you may want to add to that list before making the commitment:
1. Review your cash flow
Cash flow is pretty straightforward: It’s the total amount of money that comes into and out of your business on any given day, week, month or year. In other words, what is left in dollars and cents after everything that needs to be paid for - like rent, inventory, payroll, etc. - actually is. The quickest way to determine your daily cash flow needs is through subtraction, specifically your total expenses from your daily income:
Total Daily Income - Total Daily Expenses = Daily Cash Flow Need
The resulting dollar figure should be large enough not only to take care of the various expenses of your current location, but also for what would be required for expansion, as well as unanticipated costs, such as important equipment that may require repair or replacement. This is one of those situations in which a small-business loan may be appropriate.
2. Establish repeatable work processes
While it may seem as though companies with several locations represent the majority of businesses in America, franchises account for less than 3% of firms overall, according to government data. From clothing and apparel lines to fast food chains, franchises come in all different types, but what each has in common with the next is a system, where management and staff work know exactly the steps they need to take to produce a good or service. These workflows must be simplified so they can be learned fairly quickly - or at the very least after some basic training.
In short, documented operating procedures that have proven successful should be in place before you consider expansion.
3. Surround yourself with individuals you can trust
Trust is indispensable in all aspects of life - but especially in the workplace. Try as you might, you can’t be in two places at once, so adding another location will require assembling a team of individuals who you can depend on and who have proven their competence and capabilities. The only way to know whether you do is by observing them in action.
Your new location may also require hiring more workers. Whoever you appoint to head up your second shop must possess the temperament and discernment of recognizing talent when job applications and resumes cross their desk.
4. Crunch the numbers
No matter how much you may trust your employees and their managerial strengths, no business expansion can be successful without doing the necessary due diligence related to expenses. Anything real estate related - commercial or residential - costs a considerable amount of money, in the tens of thousands of dollars at a minimum. In addition to the labor, material and equipment involved, there are also productivity losses that may result, especially if you’re looking to build on to your current location. This is something you need to be mindful of before putting shovel to dirt.
5. Do your research
It’s safe to say that no one knows your business and what it’s capable of better than you. But how well do you know the location in which you seek to set up shop? Have you considered where the building will be situated and what level of customer traffic comes in and out? Where are your competitors located and how will your arrival affect their customer volume? What are the average household incomes in the region and what do the average family look like generationally? All this information should be publicly available, whether online or in person at the city hall.
6. Go to the experts
Confidence is key to success in any business expansion effort, but as the old saying goes, discretion is the better part of valor. You likely have friends, acquaintances or relatives who are business owners and know the potential peaks and valleys of growing their business. Ask them for any insight on what their experience was like and if there was anything they would do differently if they could. They may also be able to put you in touch with a consultant who can help you figure out your ambitions and put you on a path toward reaching that goal.
7. Evaluate worst-case scenarios
You never know what the weather will bring at any given moment, from sunny skies to destructive hurricanes within hours. Insurance can help you rebuild, but according to the Federal Emergency Management Agency, between 40% and 60% of small businesses wind up closing their doors permanently after a disaster. It’s important to be mindful of worst-case scenarios and have a back-up plan should your other location be victimized by devastating storms.
This list is hardly exhaustive, but it can give you something to work with when evaluating the costs and benefits of expansion. If you have any questions about small business financing, Select Funding is your go-to lender. Contact us to learn how we can help you take your company to new heights.