Business growth is a common goal for many companies.
However, growing a business isn’t smooth sailing. There are many risks associated with growth. You also need to ensure you have the appropriate funding, adjust to change and invest a great deal of time to make it work.
Many businesses may be put off by the sheer scale of what is required and instead choose to stick to the status quo, keeping their operations ticking along as is.
While many may prefer the safety of maintaining their size, there are a significant number of benefits associated with expanding your business. These rewards can bring long-term success for you and your company, enabling you to face the changing tides, improve your bottom line and achieve your ambitions.
Below, we’ve listed some of the advantages of business expansion and why it’s a good idea for most entrepreneurs.
The benefits of expansion
Increasing sales
One of the most significant benefits of growing a company are the financial implications. Most expansion is created through the production of additional end products (being that products or the provision of services), which enable you to address demand. By offering more, you can serve new customers, helping you to increase your base and generate more sales.
Your growth strategy may well include introducing new marketing activity into your operations. When executed correctly, these will generate more sales for your company by targeting new customers and generating demand.
Similarly, if you are introducing new products or services into your offering, you will have the option to upsell to your existing customers to generate further sales or give previous customers a reason to come back to your business for repeat purchases. Both will drive the sales value per customer.
There is an obvious advantage from increasing sales – such as driving revenue growth, which will affect your bottom line and strengthen your finances.
Improve brand awareness and market share
An effective expansion plan should enable you to gain an edge over your competition. As you become more prominent and serve greater demand, you will attract sales from your competitors as you become the go-to choice for that specific customer need. This will grow your market share.
Increasing market share will also increase your brand value and reputation resulting in more word-of-mouth recommendations from your increasing customer base. The more aware of you people are, the more likely they will approach you for their purchasing needs.
By growing brand awareness and market share, you will kickstart a cycle that continually fuels sales and allows you to become an industry leader. This will also bring more opportunities for your business that can support future growth.
Lower costs
Another advantage of expansion is that it can potentially lower costs and improve cost-effectiveness in your business.
Depending on the growth strategy you are following, you may adopt new processes, technology and equipment that improves productivity and create optimal operating conditions. For example, you may incorporate functions that speed up production, reduce waste or require less energy, all of which lower cost per output.
Scaling up your output should also enable you to access economies of scale. By generating more products or services, you will likely require greater quantities of resources. Many suppliers will offer discounts on increased order levels, reducing the cost spent per product or service. Similarly, creating more output will make your existing processes more cost-efficient .
In targeting new audiences or introducing new products/services to your existing customers, there are positive cost implications, such as lowering the cost of acquisition of a new client or increasing the sales value per customer. By doing so, you lower the cost of delivery or your product or service.
Diversify
Another form of growth is diversifying your business to target new markets. Typically, this happens either by introducing new products and services or identifying new audiences that your brand could pursue. If you are a local business, it might include opening in other locations.
The obvious purpose of diversification is that it enables you to drive sales by addressing different demand gaps in the market and attracting more people to your business. It should also allow you to improve your reach, thereby boosting your market share and reputation.
However, an additional benefit is that it offers protection. Markets and demand levels constantly change as customer behaviour shifts, so it is not uncommon for one of your products and services to fall in and out of demand.
If you are only working in one market, and that market shrinks, it puts you in danger. By targeting multiple, diverse markets, you will still have other audiences to generate revenue from. In this sense, diversification can safeguard you against the whims of the market and provide multiple sources of revenue.
Drive profit
We’ve already mentioned the impact on sales that comes with growth through increased sales, diversification and improved brand awareness. We’ve also touched upon the potential cost implications, with economies of scale and efficiency helping lower expenses associated with your operations.
By improving sales – and therefore revenue – and lowering costs, your business will significantly grow its profit.
Profits will fuel many additional rewards for your business. It could enable bonuses for you and your staff and please shareholders through higher dividends and return on investment. It is also used to build reserves that can be called upon in the case of emergencies or reduced cash flow. It can also be reinvested in your business, inspiring further growth by acquiring assets, hiring talent and upgrading processes.
With these possibilities, profit is generally a marker of success for any company – and can enhance your opportunities while satisfying stakeholders at all levels. Although cash in the bank is always king!
Better access to funding
As your business expands, it will increase in value. As a result, it can further support financial stability due to improved revenue and cash flow.
With your growing income and profitability, you become more attractive to funders. This is due to perceived as less risky as the net worth of your business grows in value by having increased security to offer as collateral for loans or becoming more attractive to investors.
With this improved access to funding, you can fulfil the financial needs of your company. This will help fuel further growth utilising external financing as you need it and with more competitive funding terms.
Helps the economy
Growth can also bring value to the broader economy. An expanding company typically means more demand is served in the market, with more customers willing to spend money.
Alongside this, as a business grows, it will increase its expenditure – such as requiring more supplies, hiring more staff and paying more tax.
If every SME were to grow, this would have a drastic effect on both the business population and economy, with more companies able to achieve their goals while increasing customer choice, creating jobs and fuelling more demand.
What to consider when seeking expansion
Once you understand why expanding could be a great idea for your business, it’s essential to be aware of what to consider to ensure your growth brings long-term success and overcomes any pitfalls. We’ve listed four of our top tips below.
Ensure you have an effective growth strategy
You must carefully plan your growth. This means understanding the shape of the market, where demand is, the financial implications and what exactly expansion looks like for you.
Spend time researching your markets and the best route forward, then turn it into a responsible strategy you know you will achieve. With this, you can understand the commitment you are undertaking and prepare your company accordingly, with a better chance of success.
Obtain the resources you need
Growth requires resources – including staff, assets, contractors, raw materials and so on. Your strategy needs to outline what you will need when, so you can focus your efforts on acquiring the resources you need (including funding them!).
By getting these critical tools in place, you will fuel your expansion.
Secure funding
Growth requires money. Not having the finances in place is a common barrier that SMEs must overcome when expanding, so understanding where this will come from is essential.
In some cases, you may already have reserves aside to support growth. However, if this does not cover your commitments, you will need external funding.
Fortunately, there are many options on the market to help. Spend time identifying the solutions available for your company and how they might fit in with your strategy. It’s also critical to check your eligibility.
It’s worth noting that you may not always get accepted for external finance the first time. You need to be prepared to put the time into applying for multiple sources of funding until you find one that works for your business and pushes you towards your objectives.
Be patient
While there are many positives associated with growth, they won’t come overnight. Reaching your growth goals takes time, especially as your business adjusts to changes. It will also likely take time for your revenue to evolve as your company does, which is when your efforts start to pay off.
Don’t be afraid to take your time and focus on getting your expansion right rather than worrying about quick results.
Conclusion
Although scaling up your business can seem daunting, it will bring desirable results that improve resilience, drive profits and might help you to become an industry leader. The alternative is remaining as you are.
By understanding your growth potential and creating a robust strategy that suits your specific requirements, you can unlock the lasting benefits of expansion while mitigating the risk.
One of the first barriers you need to tackle is funding your growth, with many SMEs needing to source external financial support. If this applies to you, it’s vital to take stock of your options.
We have knowledge of multiple growth finance options on the market, so we can work with you to find a fit for your business and its goals. Once we’ve found the right solution, we will put you in touch with funding sources that will move you forward – and even help you to strengthen your growth plan for long-term success.