How to Expand a Business
- Add new offerings
- Optimize your existing market
- Claim a niche
- Move into new markets
- Seek referrals
- Launch an ecommerce website
- Partner with other businesses
- Acquire a new business
- Franchise your business
- Research your competition
It’s one thing to start a business—it’s another to know how to expand a business. But, knowing how to expand a business is extremely important if you want to sustain your business’s success and your own financial well-being. If you fail to grow and adapt your business, you risk being left behind as the market changes or having a competitor cannibalize your business.
However, expanding your business can feel just as scary. It means putting in even more work than you already do, possibly hiring additional employees, and maybe even getting a business expansion loanor other form of funding to cover the increased cost.That’s why we created this guide—to explain everything you need to know to expand your business in a way that is both thoughtful and in the best interest of your business.
But before learning how to expand a business, you need to know when to expand a business. So let’s start there.
When to Expand a Business
Expanding your business at the wrong time can be more dangerous than not expanding at all. To know when to expand a business, consider the following factors. If several are true of your business, it may be time to branch out.
You Have a Loyal Customer Base
A strong base of repeat customers is a good sign. It indicates an ongoing demand for your products or services, as well as satisfaction with the quality of what you do or sell.
Customers Are Asking You to Grow
Are people traveling from far away to shop at your store? Do you ship many products to a specific faraway location? This could indicate that there is a new market for your products that you could be better serving.
Your Business Has Been Profitable for 3+ Years
A recent surge in profits isn’t necessarily enough to justify a business expansion—it could be temporary or seasonal. However, steady profitability is a sign you’re doing something right and that your business model will work elsewhere.
You Have a Strong Team of Employees
To handle growth, your staff needs to be ready for additional work, new demands, and new challenges. In other words, they need to have their act together. You’ll need employees who can step up and take charge of a second location, a new product line, or a big new account. If you’ve got these workers in place, your chances of successful business expansion improve.
Your Industry or Market Is Growing
You can run the best typewriter repair shop on the planet, you can’t be successful in a disappearing industry. However, if your industry is expanding, your business likely can too, since there is a proven demand for businesses like yours.
You Have Steady, Positive Cash Flow
You can be selling record amounts of your product or service, but if you’re not getting paid on time or not managing your cash flow wisely, you won’t have the financial foundation you need to fund business expansion. Review your business financesthoroughly to make sure you can handle the cost of expansion.
You Have More Business Than You Can Handle
Are you turning away customers or are too busy to contact sales leads in a timely fashion? Are you and your employees working what seems like 24-hour days? Assuming that this isn’t the result of poor time management, but of high demand, this is a major sign there is room to expand your business.
You See a Need for Related Products or Services
If sales of your initial product or service are strong, it could be time to add to your offerings. For example, if you make and sell a line of baby strollers, you could add different types of strollers such as jogging strollers or accessories. If you own a hair salon, you could add related services such as waxing, massages, or tanning.
You Have Operational Systems in Place
If your business is still operating by the seat of your pants, business expansion is not yet in the cards. You’ll need documented processes to train new employees, replicate your services at other locations, and ensure consistent quality.
You’re Running out of Room
Sometimes, expanding your business literally means moving to a larger location. If your employees are sitting cheek-to-cheek, you’re tripping over boxes stacked in the hallways, or you have to take client meetings outside the office because there’s no room inside, then it’s time to seek a larger space.
How to Expand a Business: 10 Tips
Now that you know when to expand a business, let’s look at different strategies for how to expand a business. Note that every business is unique, meaning that not all of these strategies will apply to you. However, we feel that every business owner will be able to utilize at least one or two of these strategies in their expansion efforts.
1. Add New Offerings
One of the most obvious ways to expand your business is to add new products or services to your mix. To do this, you need to know which products or services your customers want from you, and how much they’d be willing to pay for them. As an enterprising business owner, you should always be evaluating the market and looking for new opportunities—but if you need some help figuring out what to sell next, start withmarket research. Talk to your current customers about other offerings they would like to see from your business, and what they’d be willing to pay for them.
Just remember not to pivot too far away from your core business. If you sell apparel, a natural expansion might be to start offering shoes or accessories. It would be a little far-fetched if your new product was baked goods. The key here is to diversify your offerings so that they complement each other.
2. Optimize Your Existing Market
Growing your business doesn’t always mean getting new customers—it can also mean selling more to your existing customers. To implement this strategy, segment your market to identify the customers that are most likely to buy from you. This analysis can divide up your customers based on the criteria you choose, such as age, location, and buying history. Once you find the most profitable segment of your market, focus your sales and marketing efforts on that segment and expand your business with them in mind.
3. Claim a Niche Market
It may seem counterintuitive, but you can grow your business by narrowing down your market to a very specific type of customer. Your niche market is what you find when you take market optimization to its logical end. The niche market is a highly specific subset of the market on which your particular product or service is focused. A benefit of focusing on a niche market is that there is less competition and it takes fewer resources to reach them. With a niche market, you’ll typically experience higher brand loyalty and strong word-of-mouth growth.
4. Move Into New Markets
When you move into a new market, you are trying to sell your existing products or services to new customers. The new market could be customers in a different location from where your existing customers are or a different market segment within your existing location. This typically means opening up a new location or focusing your marketing efforts on a new customer segment.
5. Seek Referrals
One of the most effective ways to move into new markets is by seeking out customer referrals. After all,83% of consumerstrust the recommendations of family and friends over other forms of advertising, and referred customers historically convert more often, have a higher lifetime value and retention rate, and are significantly cheaper to acquire than non-referred customers.[1] The best way to drum up word-of-mouth marketing is to have a customer referral program—a systematic way of getting current customers to refer others to your business.
6. Launch an Ecommerce Website
If you’re a brick-and-mortar merchant, making your products available for purchase online is a great way to extend your market reach. To do so, you’ll need to set up your website using an ecommerce platform, then focus your SEO and digital advertising efforts on attracting customers outside of your business’s physical location. On the other hand, you can create a store within a major ecommerce marketplace like Amazon or eBay. Having an ecommerce store within a major marketplace makes it easier for customers to discover your products or services.
7. Partner With Other Businesses
Partnering strategically with other businesses can give you access to a whole new market segment. However, identifying other companies to work with can be difficult—and locking in a deal can be even harder. Ideally, you’ll find a partner whose products or services complement your own while not cannibalizing your business
8. Acquire a New Business
By buying an existing business you can literally double the size of your business overnight. But don’t just go about buying any business—you need to find a business that complements your own, and that is in solid financial condition. You should also have an idea of how purchasing the business will help strengthen your own business. Will it give you access to new clients? Will it allow you to diversify your product offerings? These are questions you should answer before buying.
9. Franchising
Another way to expand a successful small business is by franchising it. This is a good option if you feel you can create a system that would allow others to replicate the success of your business. Under a franchising model, you license out your business model and procedures to others who will sell your branded products or services. Note that this is an expensive and complex procedure, but can lead to very fast growth.
10. Research Your Competition
If you’re not sure what to do next when considering how to expand your business, see what your top competitors are up to. Did they recently launch a new product line or service? Have they opened any new locations? What are they doing in terms of marketing strategy? Learning what your competition is up to can help you understand what your business needs to do next and inspire you to grow your business in new ways.
How Much Does It Cost to Expand a Business?
The cost of expanding a business will depend largely on the type of business you have and the scope of your expansion plans. For example, it can be especially costly to expand your product offerings or acquire an existing business. On the other hand, launching an ecommerce website or expanding your existing market can be lower-cost expansion techniques. Regardless of which approach you utilize to expand your business, you may find you need some help with financing to cover the up-front costs. Here are some business expansion loans to consider:
Term Loan
A traditional term loan is suitable for a wide range of businesses. With this type of loan, you are lent a set amount upfront, which you pay back (along with interest and fees) over a set period of time.Term loans work for general working capital needs, renovations, inventory investments, workforce investments, and so on. However, to qualify you’ll need a minimum credit score of around 620 and at least $100,000 in annual revenue. Interest rates can be anywhere between 7% and 30%, and loan amounts can be up to $500,000.
SBA Loan
AnSBA loanis a government-guaranteed, long-term funding option made by lenders approved by the Small Business Administration (SBA). These loans can be used for a wide range of business purposes, including expansion, and boast low interest rates and long repayment terms.
There are two types of SBA loans you can qualify for: One for larger borrowing needs up to $5 million and one for smaller needs up to $350,000. Note that you need a credit score of at least 650 to qualify for an SBA loan, and the process can take a considerable amount of time, so this is not the right expansion loan for everyone.
If you do qualify, you can expect loan amounts up to $5 million, with interest rates as low as 6.5%.
Equipment Financing
If your expansion requires new equipment, then equipment financing may be the loan option for you.Withequipment financing, the lender will front you the cash you need to purchase your new equipment outright. You then pay back the total amount lent, plus fees, for a set period of time. This is typically an easier loan to qualify for since the equipment you buy is used as collateral if you default on the loan.
You can expect interest rates between 8% and 30% and you can qualify for equipment financing in as little as two days.
The Final Word
You are now equipped with 10 actionable methods for how to expand a business. The only thing left to decide is which is the best method for you. This will depend on your specific business situation and the level of resources at your disposal. Regardless of which method you choose, be prepared to put in the time and effort required to take your business from where it is to where you want it to go.
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