Business Expansion — Learn to Read the Signs That it May be Time.
Small business expansion is no easy task. It also doesn’t come about without a lot of forethought. Jumping into a business expansion of any kind (whether it’s adding more employees or opening a new location) is probably a bad idea if you haven’t weighed your options. But how do you know when it’s the right time to expand? Are there any indicators that let you know when you should push forward or hold steady?
In general, most small businesses are content to stay at their current level of staffing and exposure. In fact, one 2013 study showed that around 80% of all small businesses stay with their current staffs in any given month.[1] Adding a new employee to the mix, opening a new location, or moving to a new building are all things that can take a financial toll. One thing you have to ask yourself is “Will this change prove to be lucrative in the long run?”
Clearly, the logistics of expansion require you to spend money on some level. With the economy in an upswing, a recent poll of companies showed that many of them were willing to make those sacrifices in 2015. A full 86% of respondents said they were looking to increase their number of employees at some point throughout the year. Nearly half of all respondents were looking forward to moving their business to a new location.[2] Still, you probably shouldn’t just follow trends because it seems like other companies are taking the plunge.
Monitor Your Workload
One of the most obvious indicators that you need to hire more employees is the workload. If your current employees are complaining about being overwhelmed or not being able to work on other projects, then you should certainly investigate the situation. You can’t always take their word on it, though. Make sure that their workload is actually over-the-top before adding new crewmembers.
Having lots of work means that your business is making money. But, if adding more employees will streamline the work, then it may be in your best interest to do so. Having lots of work isn’t the same as completing lots of work. If you can redistribute the workload, you can finish projects faster and ultimately bring in new work and new clients in the process.
Analyze Costs vs. Return on Investment (ROI)
Even if you can technically hire new employees, you may want to weigh all your options before getting into a conundrum of sorts. A new employee on your payroll isn’t just going to take up salary or hourly wage. They will also bring in new insurance costs, employment taxes, and the price of additional supplies.
Of course, new employees necessitate the move to larger spaces. But, again, the costs aren’t singular. On top of your rent, you’ll have to worry about paying more in property tax, incurring higher utility bills, and working with additional security to monitor your new location.
In some cases, simply outsourcing your work may be the best option. It at least gives you a buffer before you officially begin the expansion process. Contracting an outside firm means that you won’t have to worry about insurance, employment taxes, or a lack of space. You also won’t have to worry about employing new people for 40 hours per week.
If the continual costs outweigh your ROI, then you may be better off contracting outside agencies at least in the short-term. If, however, you current revenue and the projected ROI exceed the requirements of your business expansion, then you are set.
Look at Your Revenue
It’s a good rule of thumb to be profitable for some time before in engaging in any significant expansion. If your revenue has been climbing steadily for 2 or 3 years, then expansion is naturally going to be on your horizon.
A great way to monitor your revenue growth is to look at the sales volume-per-employee ratio. If you were making $5,000 per employee two years ago but are currently making $20,000 per employee, then you’ve clearly made a lot of headway. Business expansion is certainly more feasible when revenue growth is steady.
There is really no magic number that you can reach in the sales volume-per-employee ratio because every company is different. On a broad scale, you can look at a company like Starbucks that makes about $55,000 per employee. It seems like a small value, but Starbucks employs 74,000 people across the nation.[3]
Obviously, small businesses work on a much smaller scale, but if you see that ratio is growing year after year, then expansion may be in your future.
Investigate Market Trends
Sometimes, business expansion is necessitated by an opportunity for growth within your industry. If you see that opportunity for growth, then you can certainly benefit by taking a risk and expanding in that direction. Expanding within your industry can mean offering new products or services or improving current ones. In some cases, you may need new employees with a different skill set to ensure that this business expansion runs smoothly. Although you shouldn’t rely on market trends alone, they can be an indicator that it’s time for expansion.
Small business expansion is never easy, and you’re sure to run into some growing pains before all’s said and done. Even so, expansion is a necessary aspect of the success of any business. You just have to know when it’s the right time to grow.
