Whether or not to expand a successful business is one of the toughest questions many entrepreneurs face.

By Jason O’Leary

On one hand, it can be the key that unlocks even more growth and takes your business to the next level. On the other hand, though, expanding too early and too aggressively is often cited as one of the most costly mistakes a small business can make.

So, is expansion the right move for you? That depends on a wide variety of factors. If you’re considering expanding, these are some of the most important questions you should ask yourself to determine whether or not it’s the smart choice. 

What are the realistic best-case and worst-case scenarios of expanding? 

You owe it to yourself, your employees and your business to consider all of the angles, not just the ones that present a rosy picture. Thus, you need to consider both the greatest realistic upside and the greatest realistic downside of your planned expansion.

Getting together with your management team and taking a long, hard look at the numbers should be one of your first steps when considering expansion. Ask each member of your team to list potential best-case and worst-case scenarios of expansion, and use these to make lists of the biggest upsides and the biggest challenges you’re likely to face. This knowledge can be helpful for guiding you and knowing what obstacles to watch out for, should you choose to move forward with expansion.

Do you have people already on board that you can trust to step up and handle the expansion?

The team you bring to the table is one of the things that will likely make or break an expansion. Consider the state of your team and ask yourself whether the people you currently have, particularly your management team, could handle an expansion.

Bringing new people on in management during an expansion can be a risky proposition. They won’t be as familiar with the specific way your business operates, even if they know the industry, and they won’t have the rapport built up yet with other employees.

In addition, expansion can create a general high-stress atmosphere among a business’s employees. It’s important to make sure that your employees are able to care for their mental and physical health during this time. They’ll all be pushing themselves hard, so they may need extra support or time off, even if it seems like an expansion is the time when it may be most difficult to give.

Have you done the math to be reasonably sure that the market will support your expansion?

Is your business already overflowing with demand, or are you assuming that expanding will create more? The latter is a dangerous assumption to make. There should be clear and present market conditions to support your expansion.

Expanding demands careful market research. Pay attention to factors such as population demographics and the strength of competition in the area. Is the market genuinely underserved, or does expansion just seem like a good opportunity? Make sure to leverage the many easily available tools for performing market research.

This is also a good time to pay attention to the state of your industry. You probably have a general idea of how it’s doing, but take a look at some hard numbers. Is demand for your product or service category on the rise, or is it flat or stagnant? Businesses in industries that aren’t on an upward trend should think extra carefully about whether expansion is the right decision.

Has your business model proven itself to be truly sustainable, not just successful in the short term?

A business that’s been profitable for a year or two is great, but it hasn’t necessarily demonstrated the sustainability necessary for a successful expansion. Expanding too soon can damage the delicate structure that a new business has developed to keep it running.

You should have not just regular customers, but established relationships such as long-term partnerships with suppliers, distributors and manufacturers. Your business should have a demonstrated ability to create the winning network that it needs and to leverage it, and it should be able to do this in a consistent manner for an extended period.

Of course, timing is a key part of business strategy, and sometimes you need to strike when the iron is hot. But give as much consideration as possible to truly understanding your business model in-depth, what makes it work and how you can expand without compromising your foundation.

Are you ready for the additional paperwork and legal requirements that come with expansion?

Expanding can present legal and financial challenges that aren’t always immediately obvious. You should be prepared to bear the financial costs and put in the work required to secure new building permits, incorporations, business licenses and other legal hurdles that require payment of state and local fees.

Be equally cognizant of additional insurance or bonding requirements that expansion may pose, particularly if you’re expanding into a new municipality, state or country. This requires diligent research into surety bond requirements and contractor bond requirements, as well as insurance regulations you may need to fulfill.

Could you be better served by other strategies such as diversification or partnering with another business?

Sometimes other tactics will serve your business better than expansion will. For example, if your business is successful, but your market isn’t particularly hot, it might be time to diversify rather than expand.

Creating and leveraging smart partnerships can be another winning tactic for businesses that aren’t quite ready to expand, but want to continue to grow and improve. A company that prints t-shirts, for example, could benefit from a partnership with a local record label by becoming the go-to shirt printer for bands on the label, while a local veterinarian might partner with a pet grooming business.

The idea of expansion is a thrilling one for almost any business, but it’s important to know when to pump the brakes and when to forge ahead. A well-planned and well-timed expansion can be a stepping stone to a dominant market presence, but a poorly-executed one can create major issues that destabilize your business. By carefully considering relevant factors and hard questions, you can make an informed decision about whether expansion is the right choice for you.

Jason O’Leary brings 15 years of deep technology, product development, and marketing experience to Surety Bonds Direct. He has been leveraging Agile practices for well over a decade and is versed in various Lean practices as well.

Expanding business stock photo by Peshkova/Shutterstock