Business owners must determine when the time is right to expand current operations. They have already successfully started a business from scratch, so expanding it shouldn’t be difficult. However, they must view the expansion as part of the bigger picture. Doing so ensures the growth will be sustainable.
This requires the business owner to consider the capital available for expansion and the projected return on investment. Furthermore, the business owner must determine how they will draw consumers in and convert them to paying customers without alienating existing clients. These are only a few of the many factors the owner must account for when making the decision whether to buy a new business.
Nevertheless, certain signs suggest it is time for a business to grow. The following are a few signs every business owner should track so they don’t overlook an opportunity to expand successfully.
Ongoing Financial Growth
It may be time to expand a buy a new business if the existing one has a positive financial history. A person might assume that one year of financial growth is enough to take this step, but experts recommend waiting three to five years before expanding. This shows financial stability over the long term.
A company with steady, positive cash flow might find it is time to expand if its short-term financing cannot meet its business needs. For instance, a company might find sales are increasing and profits are rising, but it lacks short-term financing to fund growth. This is a sign it is time to expand, which every owner must be aware of.
On the other hand, when selling a business, an owner needs to consider the company’s past financial growth. Positive growth will allow them to ask more for the business. Slow growth, in contrast, will lower the asking price.
A Solid Team
When an entrepreneur decides to buy a new business, they need to ensure any existing ones have solid teams in place. The entrepreneur will need to leave certain tasks to these teams and focus on the expansion.
In addition, this individual must ensure there is adequate money to fund the expansion, as it may take time to become profitable. When there is a solid team in place and ample cash to carry the business through the transition, it is a good time to consider taking this step.
Changing Needs of Customers
Business owners need to listen to their customers. If clients continue to ask about new product lines or improvements on existing products, the owner needs to see this as a sign that it is time to grow. When a business owner chooses to ignore this feedback, they might find they lose customers to the competition.
An entrepreneur will find this is the ideal time to expand, as the target audience has been identified. When the business owner invests in expansion to better meet the needs of their customers, the customers will come to purchase the products or services. Consumers appreciate the fact they now have a solution to a problem they are experiencing and they are already familiar with the brand that is providing the solution.
Furthermore, any company struggling with supply and demand issues should consider expanding. Its customers’ purchasing power has increased, which has led to an increase in demand. The current operation cannot keep up, so it is time to grow the business to better accommodate existing customers.
Increased Market Opportunities
A business owner must assess the strength of their industry to determine new market opportunities. Booming industries can use more businesses, but an entrepreneur in a fading industry should not expand. They might find doing so is not sustainable. Nevertheless, the entrepreneur must also determine if new products or services could revitalize this industry. If so, expanding might be a good idea.
This is another area where business owners need to listen to their customers. If they are requesting expanded service hours or asking about other locations of the business, look into expanding.
One area of possible expansion many business owners overlook is the supply chain. A business might find it can make one or more components in the supply chain rather than outsourcing this task. This helps to reduce costs and risks while increasing profits.
Profitability and Sustainability
Business owners realize they must expand over time, but they don’t know when the right time to do so is. One thing to consider when making this decision is whether buying a new business will increase profits and make the organization more sustainable. When this is the case, expanding is a smart move.
However, if the expansion will lead to more work and less profit, it is best to hold off on doing so. A business should never expand just to grow. Only do so when the expansion will lead to more profit and value.
Evolution of the Industry
Industries evolve over time. Business owners in that industry must do the same or they won’t remain in operation long. Consider investing in new industry trends to stay ahead of the competition while meeting the needs of customers. One way to do so is to buy a new business that has already incorporated these trends. This allows the company to adapt easily.
Customer Acquisition Cost and Lifetime Value
New business owners find their customer acquisition cost (CAC) is higher than the lifetime value (LTV) of these customers. When the CAC drops significantly lower than the LTV, it may be time to expand. The same holds when the business has a solid, loyal customer base.
Some entrepreneurs expand their businesses simply because they know in their gut it is time to do so. They see the signs and are ready to respond to them. A person should always listen to their gut, but they should also consider the above-mentioned factors when doing so.
It’s always exciting to expand a business, but it is very depressing to do so only to find it was the wrong time. With careful consideration on the part of the business owner, it becomes easier to know when this time arrives and when expansion is not a good idea. When the time is right, the expansion will be that much more thrilling because the business owner knows they are set up for success.