Many business owners shy away from taking their own enterprise to the next level. Expansion can be hard and it involves risk.
However, there are a number of options that business owners should consider as they move forward. Not all of them work for every business. A shrewd entrepreneur should find the solution that works best for them.
Here are five simple tips for businesses that are keen to expand:
1) Protection: The first and most obvious step is to protect the business and reduce personal liability as you seek to expand. This will involve taking out the necessary insurance.
Senior tax adviser at the Institute of Public Accountants, Tony Greco, told Dynamic Business the insurance options will vary depending on the nature of your business and if it is diversifying into new areas.
There are many different types of insurance. They can range from professional indemnity insurance to income protection insurance. The key factor for business owners is to do the necessary research to find the best possible fit.
2) New Location: This is a calculated risk that many business owners explore. It can also involve a high risk of failure, so it requires a lot of thought. Obviously, the location will be critical. A business plan will be required in addition to a degree of foresight about the site in question.
However, other factors to consider involve costs. Usually, a business will need to have demonstrated a strong profit over a number of years to open at a new location. A skilled management team will be required to make the transition and new employees will normally be required.
Financing will be a major issue. Access to long-term finance can be hard for many small businesses. Some have resorted to using credit cards although this can be a crippling option for many while others have put a second mortgage on the family home. However, these are high risk options. Ideally, a business will have the strong fundamentals to gain access to long term finance from a major lender.
3) Franchising: One way to unlock growth opportunities is to allow staff members to take an ownership position in the operation of different business locations. If staff have a vested interested in their work and can run a business in return for profits rather than a salary, it can lead to better results.
Franchising can also save on expansion costs. If franchisees are willing to buy up locations to expand the chain, it can save business owners from drawing too heavily on their own resources. It can also generate high returns for little risk. However, it also means you have less control over the business.
General Manager of the Franchise Council of Australia, Kym De Britt, told Dynamic Business that many people looking into this option are those who “want to open in a new location, or expand their distribution or area of service but don’t have the capital to do it”.
“We strongly urge anyone who wants to franchise their business to make sure they are already successfully operating in multiple locations, or across several territories,” he said.
He also said that anyone interested in converting their business to the franchise model would need to be familiar with the Franchising Code of Conduct. This will typically require the use of specialists in franchise law and finance.
4) Diversification: Diversification can lead to other streams of income for businesses. Often it does not involve a total business overhaul. Instead, smart business owners can diversify by offering services or alternative products in complementary fields.
5) Merging: This can be a tough decision for business owners. But merging with another business can expand your customer base and help you tap new markets. Depending on the type of business you are considering merging with, it is possible to strengthen up a part of your business that has been weak.
Usually, the merger will prove challenging as there will be an integration of business cultures, technology systems and staff. This transition can be made simpler by trying to keep employees engaged in the kind of work they were doing before the merger and keeping open strong channels of communication.