Bigger is better: benefits to growing your business

Don't let the 'small' in small business fool you- there are more benefits to expanding your business than you may think. Last week, we outlined some of the disadvantages associated with expansion. However, there exist plenty of professional and financial advantages to growing your company, the most obvious being improved sales, investment and marketing opportunities.

Many SMEs associate expansion with an aggressive business strategy that will eventually result in poor cash flow and unnecessary stress for its owner and employees. However, even businesses that do not expand can experience the same pitfalls- it is all about managing your funds well and continuing to provide consistent, positive customer service.

Making the right decision depends largely on the financial health of your business and what direction you want to take it in, particularly if you want to achieve long-term growth. Key signs that your business is ready to expand are positive cash flow, strong sales and a regular, loyal customer base. You should also draw up a comprehensive list of your company vision, goals and targets for the next few years in order to decide if your business will benefit from having more than one location or product.

Economies of scale

Having more than one branch office or factory can reduce your overheads and operating costs in the long term. Many small business owners are concerned that this will take them into negative cash flow territory, but if you keep a close eye on the books, there is no reason why the capital invested shouldn't be returned to you in the long run.

Over time, the cost of manufacturing per unit will decrease and productivity will improve. Your business can also qualify for bulk discounts if there is sufficient demand for your product. However, SMEs shy away from buying in large quantities because they usually have a small customer base, but this can be remedied by forging an alliance with like-minded businesses. Buying in bulk with other businesses will lower the purchasing cost for each participant.

Financial viability

A larger business is viewed as more credible and viable by lenders and financial institutions, despite the level of risk associated with an expanding small business.

A company that intends to open or has opened two or three offices is usually viewed as a relatively strong and stable business. It sends a signal to the market that the business has good cash flow and capable management skills, which may even result in your business being used as a franchise model.

Expanding is not always about location

There are more ways to expand than just increasing the number of outlets or factories you own. Increasing the type of products sold or distributed means that you can also penetrate different markets. You can also think about expanding into the information and communications technology (ICT) market, simply by offering an online service in addition to your physical location. These options are less risky than jumping headfirst into an external market.

Managing director of Perth-based KAPP Engineering, Peter Parlongo, favours a conservative but progressive approach. Since its founding in 2005, the electrical engineering firm has made a "conscious decision to grow gradually" despite strong mining demand for its services.

"The business is absolutely scalable," Parlongo says. "Although we're small, we still have lots of goals; it's all about finding the right sources of income and adapting and expanding the business over time."

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