Spend smart to grow smart
Don't jump into expansion without making sure to
cover your bases:
Karin Price Mueller
Your business isn't going to grow on its own. If you're ready to
expand, but you're not sure where to start or how to best use your
resources, consider this a primer.
"You always have to invest in your business, and every business grows
differently," says Bruce Clinton, a small business advisor and executive
coach with BusinessWise in Madison, Conn. "It's more of an art than a
science."
There's no one answer for every business, but you can use this guide
to analyze what kind of spending is best for growing your business.
Start with a budget
Before you can decide on an effective expansion strategy, you have to
be sure you can afford it.
Re-evaluate your business budget and see how much cash is available
for investing in the next stage of your business. Start by subtracting
your expenses from your revenues to get a handle on what's available.
Next, project your costs and profits for the next several months, at
least.
When you see how large or small your expansion pot is, it's time to
consider borrowing alternatives. Banks are still somewhat stingy with
loans, but if you have strong enough credit and are willing to borrow
talk to your bank about loans or lines of credit. Estimate the payback
costs and decide if the expected profits from the expansion will make it
worthwhile.
Getting the biggest bang for your buck
Once you know how much you can afford to spend, it's time to
determine how to get the biggest bang for your buck. "Part [of the
decision] is cost and part will be 'what will give me the biggest return
on my investment'," Clinton says.
Ask yourself "how fast will my investment be returned to me in the
form of new business?"
Perhaps you need a new employee or product line? Maybe there's some
new technology can take your business to another level. The expansion
possibilities will vary in scope depending on your business, but here's
some choices you may consider:
u Increase staffing: If you have more work than you can handle,
another employee may be the answer. If your business involves sales, a
new star sales rep will drum up new clients and be a worthwhile
investment. Another strategy would be to hire support staff who could
take the pressure off you.
"Offload tasks that could be delegated so you can use your skills,"
Clinton says. "Rather than type invoices, hire someone to do that." If
you can't afford a full-time position, consider temps - who can step in
when you need them.
u A new location: If you operate a store and you want to expand, it's
all about the classic, "location, location, location," says Martin
Lehman, a counsellor for SCORE, a nonprofit organization providing
advice and help to entrepreneurs and small business people. Lehman, who
used to own a chain of women's apparel stores, said he opened his stores
one at a time, and that it's the best way to expand: slowly. Don't rush
and settle for a lesser location. Take your time and find the best place
to reach potential customers.
u New product lines: Think about what your current customers get from
you today, and how you can complement that relationship. "Look at what
you're selling - every business is selling something," Lehman says, "and
ask, 'Will it meld into what I'm doing today? Will I still have a
customer for it?'" If you're not sure, ask your customers what
additional goods or services they want. Create a one-stop-shop for your
customers by expanding into the areas your built-in base needs.
u Technology: If you've been itching to get your business an online
presence, technology - such an e-commerce site - could change the face
of your business. Clinton says the marketing opportunities you could get
through the internet are tremendous and always changing, so hiring a
technology consultant can help keep your company on the cutting edge.
u Traditional advertising: Reaching out to potential new customers is
always a good way to grow your business. Talk to an advertising firm or
public relations expert about how and where you can get the word out
about your business.
Run several scenarios
When you choose the area of your business you'd like to expand, it's
time to examine the 'what ifs'. Examine each growth possibility and run
the numbers differently to see how each option could impact your bottom
line. Don't jump at the first idea without considering all the
possibilities, Lehman says.
"If I wanted to get married, I'm not going to marry the first girl I
see," he says.
"Take each avenue and examine it carefully. Each has it good points
and bad points. See which will bring the most profitability."
entrepreneur.com
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