What are the main risks of expanding a business?
Many business owners see expansion as a key to business success. By growing their company, entrepreneurs hope to gain a bigger share of the market, increase their profits and even make their business a household name.
Though the rewards of growth may be considerable, the risks of expanding a business at the wrong time or in the wrong way are also significant. If you’re considering taking the plunge and growing your company, here are some of the main risks you need to be aware of before you begin.
Over extension
One of the main risks of expanding a business is over extension. Spreading yourself or your resources too thinly could lead to a drop in the quality of the products or services that you offer.
If your new branch or venture takes a little while to establish itself and turn a profit, the strain that it places on your existing business could push you to breaking point.
To counter this, try to ensure that you don’t open any new branches or launch any new strands of your business before you have enough financial backing and resources to cater to it properly.
Providing sub standard services or products could severely damage your reputation, something that can be difficult to recover from.
Growing too quickly
With many entrepreneurs seeing expansion as their main business goal, it can be tempting to push your business too hard and expand too quickly.
Opening lots of new branches, websites or product lines may seem like progress, but growth that happens too quickly is unsustainable and can lead to all of your businesses collapsing.
Safe expansion needs to allow time for all new ventures to become established and profitable in their own right. This will help to prevent your business from becoming over stretched and should lead to a successful and prosperous company.
Different markets
If your company relies on local or niche knowledge for its success, expanding into different regions or different product lines could leave you vulnerable.
Even markets that appear to be similar or related can be radically different in practice, and unless you do a significant amount of research, you could well be caught out by these differences.
However, if you get it right, your expansion could open your online business up to a whole new audience and give you a significantly increased share of the market.
Though expansion can bring huge profits and benefits, the risks of expanding a business are considerable. So if you’re planning to grow your company, make sure you take it slowly, do your homework and never stretch yourself to breaking point.
Source: UK Businesses For Sale