When Should a Business Consider Expanding to a New Location?

As with any other important aspect of business, expansion needs to be carefully thought out and planned before any action is taken. Since expansion is a normal part of owning a company, it is recommended that new business owners even include basic expansion plans in their initial business plan. Not only does this allow investors to see some of the owners' long-term dreams for their business, but it also lets owners to measure their progress towards these goals, as well as determine if these goals are plausible or need revision (AllBusiness.com, Inc., 2008). Ultimately, thorough expansion plans must include both the company's goals and the steps necessary to reach these goals and these need to be carefully written out in full detail to properly guide the business so it can fulfill its goals (Robbins & Coulter, 2007). However, a business considering expansion has much to consider before it can make a concrete expansion plan. Ultimately, it needs to "consider the costs, benefits, and risks of opening a second business location" (Toolkit Media Group, 2008, para. 1).

State of Current Location(s)

The first thing that an organization must consider before making a decision about expanding is if its first location is as successful and stable as it appears. It is crucial that all major problems have been ironed out of the first location before a company ever considers expansion to another site. Logically, the bigger a business grows, the larger its problems can become and the more costly it can be to fix these issues. Since those inside a company can be overconfident about their products and the current condition of their business, I would recommend that a company conduct its own thorough assessment of its business, as well as allow a qualified outside consultant to do their own assessment. Using both assessments, it will then be able to determine if the business is structured and stable enough to open another location (My Own Business, Inc., 2007; Spaeder, 2004).

Availability of Funds

Another factor that a business should think about before expanding is if it can currently afford the costs of opening more sites. Before it begins implementing steps to expand, it is essential that the company specifically outlines possible sources of capital, as well as to ways it can generate money to cover the additional costs (i.e., increased inventory, additional employees, and new facilities). It is best for a company to expand using inside investments and profits from sales to avoid overwhelming debt. However, which ever way (or ways) a business chooses to finance its expansion, it should never forget the importance of controlled cash flow because without sufficient cash, a company will soon crumble. In the end, to see if an organization can afford expanding, it should (1) create a list of all the specific costs of opening new locations, (2) research how much capital it can receive from those within the company, creditors, and other investors, and (3) generate cash flow projections that take into consideration the following issues when expanding: decrease in income, major increase in expenses, and unforeseen problems (Mendoza-Bates, 2008; My Own Business, Inc., 2007).

Competitors' Recent Expansion Success

Next, the business would be wise to also evaluate its competitors' recent expansion plans to decide if the market is sufficient for expansion. If one or more of its competitors has had some major issues with expansion, it may be an indication that the market is going through a slump. On the other hand, if its competitors are successfully expanding, the market might be ripe or the competitors have found new opportunities to market their products to consumers. Taking all of this into consideration will allow the company to develop its own unique expansion plan that can help this business avoid the mistakes of its competitors and benefit from their innovativeness (Mendoza-Bates, 2008; Spaeder, 2004).

Conclusion

In the end, any business seeking expansion must assess if opening new sites will actually draw more customers and bring in more profit. A new location will obviously mean more bills and employees to pay and countless other expenses. However, another site does not necessarily translate into more customers or more sales. For example, unless the new retail outlet is established in a good location, it could cause serious losses for the business. Therefore, it should consider the pros and cons of opening a new site, as well as the advantages and disadvantages of other expansion options, such as expanding to the internet, to find the best expansion option if this company is truly ready for expansion (Spaeder, 2004).

References:

AllBusiness.com, Inc. (2008). Include expansion plans in your business plan. Retrieved July 31, 2008, from http://www.allbusiness.com/business-planning-structures/business-plans/1733-1.html

Mendoza-Bates, M. (2008). Things to consider before expanding your small business. Retrieved July 31, 2008, from http://www.powerhomebiz.com/vol75/expand.htm

My Own Business, Inc. (2007). Session thirteen: Business expansion and handling problems. Retrieved July 31, 2008, from http://www.myownbusiness.org/s12/index.html

Robbins, S. P., & Coulter, M. (2007). Management (9^th ed.). Upper Saddle River, NJ: Prentice Hall.

Spaeder, K. E. (2004, May 11). 10 ways to grow your business. Retrieved July 31, 2008, from http://www.entrepreneur.com/management/growingyourbusiness/article70660.html

Toolkit Media Group. (2008). Business expansion. In Small business guide. Retrieved July 31, 2008, from http://www.toolkit.com/small_business_guide/sbg.aspx?nid=P02_3201