In this part of the series: How Small and Mid Sized Firms Grow discusses determining when it is time to expand and how to do this effectively.
It is hard enough to run one operation, so why add to your misery and expand? The answer is that this may be true but if you want to become a large company you will have to do this and the more times you expand the easier it is to do so. So how does one go about growing? The first thing is to secure your base operation so that it is running well and you will not have to drop everything during an expansion to fix your core business. Having said that, nothing is ever perfect, but if it is running well enough you can start to consider growing. If things are under control you can expand business in your home base as well as start a new location.
There are a variety of ways to expand. Typically a company either sees a good business opportunity in a growing and underserved market, they have an anchor client that takes them there and expanded from there, or has an employee or solid person who knows that market and is a natural fit to start it up. Sometimes it is just a place one want to be and says lets go. Any of these can work provided that one does their homework first. On the negative side for example, if their new client is the only game in town and that is not enough to sustain them that would be nice to know. If they run the numbers and they will need $150,000 in terms of cash flow and they have only $100,000 with no wiggle room that should tell them don’t even start unless you can make ends meet.
Alternatively if they need $100,000 and have $150, 000 to invest then we have satisfied the first criteria, survival. They then need a game plan with specific responsibilities, due dates and facts to be confirmed, etc.
Next they need to verify if it will be worth all the effort to expand. If their base sales are $10,000,000 and the market potential if they get everything right is $400,000 in a flat market with severe price competition, a potential for a 2% return on sales (or $8,000 a year in incremental profit) and a loyal client base, there has to be better fishing grounds and the search for an expansion opportunity should continue. It is usually not that difficult to get a handle on the numbers and do some what if analysis to see how you can tweak the numbers to see if there is a way to make something work or satisfy yourself that its not worth the effort and risk.
Our next blog will discuss how to retain clients.
To see all articles in this series please go to http://optimal-mgt.com/blog
Optimal Management is the premier management consulting company to the staffing industry. We act as mentors to owners and managers to maximize their sales, profits and value of their company. We become an extension of our clients operations and are there for all of their staffing and business needs, from sales, marketing and compensation plans, to finance, M&A, general management and everything in between.