The Tribune

By Ian Ferguson

In a familiar passage of sacred text, Jesus tells Simon Peter, an experienced fisherman, to launch out into the deep and cast The Net on the other side. Our conversation today engages businesses in whether or not to expand the scope of their business operations, or remain at their existing level of capacity.

Growth and expansion requires careful planning. So many businesses are caught up in the rapture of mere existence that they seldom think of growing and expanding. Yet for those businesses experiencing some level of success, the thought of increasing business capacity is perhaps at the top of the list of corporate goals.

You cannot simply wake up one day, though, and decide that you will open a second or third store, or increase your product line outright. There are important variables that you need to consider before embarking on an expansion.

As your business increases in size, costs per unit fall, resulting in lower prices or higher profit - or both. You should only expand if economies of scale will allow your business either to sell your products or services at lower prices, or to take more profit per item.

By growing your business and achieving more favourable economies of scale, you may be able to buy more. Instead of buying for a single store, you are now buying for two or three stores. Such high volume purchases will allow you to get lower prices for everything from raw materials to transportation.

What are your competitors doing? Are they expanding? Your knowledge of the market should play a key part in your decision to expand your business. Getting information about your competitors can give you the leading edge and is vital market information before making a decision to expand.

Are you financing the expansion internally? Do you have the cash flow to support an additional investment? It is important to determine where and how you will get the money to pay for the additional inventory, new facilities or equipment. The ideal situation would be to expand only when you have already proven that demand exists for your products or services, as proven by your encouraging bottom line.

If you need additional capital, whether a loan from the bank or an equity mix, make sure the new venture will be profitable enough to allow you to earn money and repay the loans. You may need expert assistance in making this determination. Many small businesses met untimely deaths with their aggressive growth strategy, only to find that they are buried deep in debt with no other recourse than to close their doors.

As you expand, you must also consider your customers. Will your customers tolerate your growing pains? Timing is crucial in making the decision to expand a business. Sometimes, expansion can become quite hectic, noisy and messy. All of these may adversely interfere with your ability to consistently satisfy the customer. You must be careful to keep the reason why you are expanding at the fore.

Expansion often requires the business owner to assume a less hands on approach to operating the business. A company with many divisions, stores and units requires a team of leaders to manage these diverse functions. As you expand, you must be prepared to release key functions of the business to responsible team members.

Additionally, if you are seeking expansion capital from investors and other capitalists, you should be prepared to relinquish part, even total, control of your enterprise. Some investors will demand equity or a say-so in the day-to-day operation of your business. Some will even agree to fund you on condition that a person they recommend will run the expanded venture.

Sometimes, expansion means that you are diluting beyond recognition the passion that originally started the business. Growth may force you to let go of the total design control you enjoyed when the company was much smaller, and that may not be an easy adjustment. Be prepared.

NB: Ian R. Ferguson was educated locally, regionally and internationally, having earned a Master’s Degree in Education from the University of Miami. During the course of his nearly 20 years in education, talent management and human resources, he has served both the public and private sector in senior management roles. He currently serves as manager of the Chamber Institute, and as a local consultant in the field, having assisted hundreds of local and regional businesses in improving business and service excellence through their human capital.