Growth and expansion are both a necessity and an aspiration for almost every business enterprise. However, irrespective of the intensity of the need for growth and expansion, only a handful of businesses succeed in their expansionist attempts. And every such business success and failure story provide important lessons to learn from. One such important lesson is that of self-evaluation or self-assessment of a business enterprise required to be conducted by its owner(s) before starting to plan for business expansion. In this article, we’ll try to delve into certain relevant insights which could help businesses determine if they are fit and ready for growth and expansion.
Meaning of and Need for ‘Business Expansion’
The term ‘business expansion’ may refer to different sets of activities depending upon the business growth strategy being applied which could be both organic and inorganic. It may mean the addition of new business locations or entering new markets, the addition of new products or product lines into the portfolio, mergers and acquisitions, joint ventures, strategic alliances, increased production, increased workforce, adding new channels and so on. A business enterprise may seek growth and expansion to achieve higher turnover and profits, to capture additional market share, to come up with competition, to meet with the changes in customer wants and preferences etc.
The term ‘business expansion’ may refer to different sets of activities depending upon the business growth strategy being applied which could be both organic and inorganic
|Fitness Criteria for Business Expansion|
A steady and consistent footfall of customers who are also making purchases reflects that the products/services being offered by a business enterprise are fulfilling customers’ needs and it is successfully catering to the targeted market segments. Where a business enterprise is experiencing a healthy customer footfall combined with consistent achievement of its sales target, it becomes most pertinent for its owners to assess if there’s a larger market share available and if the business can fulfill higher levels of market demand. One possible advantage with this kind of a situation is that the business can be expanded by following more or less the same business model, which is known and proven to its owners and management, but on a larger scale.
Where a business enterprise is experiencing a healthy customer footfall combined with consistent achievement of its sales target, it becomes most pertinent for its owners to assess if there’s a larger market share available and if the business can fulfill higher levels of market demand
Leadership and Teams
How a business is managed and its archetypal characteristics are strongly shaped by the personality and the competencies of the people who own and run the business. This is especially true for small businesses. Business expansion is not just about the presence of market opportunities. Riding on high tides is not everyone’s cup of tea. Handling business growth and expansion requires energetic leadership, business acumen, vision, and planning, ability to motivate others and many other competencies. Before arriving at any conclusion for business expansion, it is worthwhile to introspect whether the business enterprise has the right kind of leadership and the supporting teams to manage a larger business.
Handling business growth and expansion requires energetic leadership, business acumen, vision, and planning, ability to motivate others and many other competencies
The business expansion involves the infusion of additional funds for investment in different assets like land & building, plant and machinery, technology etc or to give effect to mergers and acquisitions, JVs and strategic alliances. Although most businesses would prefer to keep their reliance on external funding at the minimum level to fuel their growth and expansion projects it is something that also depends on the nature and scale of expansion sought. If the financial condition of a business is in good health, it could be relatively easier for it to attract investment.
If the financial condition of a business is in good health, it could be relatively easier for it to attract investment.
A business is likely to be considered as financially fit when its revenues are consistently growing, its financial ratios (profitability ratios, working capital ratio, debt ratio, activity ratios etc) reflect healthy numbers, it has adequate liquidity to meet contingencies, it has a balanced capital structure etc. Thus, when a business enterprise is financially fit, it is better poised for growth and expansion.
To read more about financial preparation, click here ‘Effective ways to financially prepare for expansion’
Irrespective of the size and scale of operations, every business is made up of people, organization, systems and processes, policies and control, technology etc. It is the organization of all these elements that make a business stable and working. A business enterprise that runs on loosely or poorly defined processes and Standard Operating Procedures (SOPs) is very unlikely to constitute a stable and robust organization. With growth and expansion comes the need for an enlarged organization while maintaining its stability and robustness. Without a suitable organization and its stability, it might get very difficult for a business enterprise to manage and sustain increased business operations. Therefore, it becomes pertinent for a business enterprise to review its organizational stability for growth and expansion.
Without a suitable organization and its stability, it might get very difficult for a business enterprise to manage and sustain increased business operations
To read more about organizing your business, click here ‘How to organize business?’
Just like market research and analysis is important for a business enterprise to assess the business opportunities and threats in its external environment, in a corresponding fashion, assessment of the internal strengths and weaknesses of a business enterprise is also crucial for determining its fitness for growth and expansion. Customers, leadership, financial and organizational stability are some of the important parameters which could define a business entity’s appetite for expansion.
To read more article related to this topics click here: Why Business Model is the First Step Towards Organizing Your Business? | YRC, How Can an SME Raise Funds from Public? | YRC, 05 Reasons why Developing the Right Culture in the Organization is Inevitable for Growth | YRC, How SOPs will Benefit Wholesale Brand Venturing into Retail | YRC.
YRC is an “Expert Service Division” of Mind-A-Mend Consultancy Pvt. Ltd.
Chief Strategy Officer