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In 1999, Teresa Norton came to a crossroads: turn away customers or expand her business. It wasn’t an easy decision. Norton, president of NEI Inc., a document imaging and data management firm in Clearwater, Florida, had been a one-person business generating about $50,000 a year. Working out of her home, Norton was faced with hiring her first employee and moving to a new business location simultaneously. “I wasn’t prepared, but decided there was no choice so I started revising my plan,” notes Norton.
Like Norton, entrepreneurs should consider expansion when customer demand exceeds what they can accommodate at their current staffing or inventory level. They should also consider expansion if the external market has experienced a change that will drive greater demand for their product or service. How to go about doing that is the challenge — but one that can be addressed with the proper planning.
Focus on your business, not the economy. According to small business consultant Wally Bock, one of the worst things a small business owner can do when considering expansion is to ask, “What about the economy?” Bock says, “It’s simply the wrong place to start. Instead, ask basic business questions.” Things to consider include whether you have the funding, energy, resources, and employees. However, the most important question is “What is the reason for expanding?”
Dave Ratner, a 27-year, small business veteran recommends considering your feelings about company debt. Will you acquire debt as you grow? Will the additional growth pay for itself? Or will you expand only when you have the cash in hand? And don’t forget about the added stress the expansion will bring — longer hours, less time with your family, and the feeling of being pulled in different directions at once.
Use facts, not feelings. Do your homework. “Be clear about the indicators you will use, along with a time frame, to decide if the expansion plan should be continued, reengineered, or suspended. Don’t risk more than you can afford to lose and still recover your original business success,” advises Susan M. Carter, author of How to Make Your Business Run Without You (Nasus Publishing; $38.00). Those who don’t already know should learn how to interpret the numbers on balance sheets and income statements into stop and go signals for action. Determine your make it and break it points and be ruthlessly realistic in verifying the facts that will help you move forward with your expansion. Most small business owners get hung up in the passion to expand rather than relying on facts. Seek proof in the form of good solid financials before, rather than after, the expansion.
Plan it, don’t wing it. Expect and prepare for the unexpected. When planning, consider worst-case scenarios. “What if you go forward with your expansion and sales drop 50% in the next year?” asks Carter. Your plan should focus long-range, and be rooted in solid research about your industry and market trends. Include activities that help you stay on top of competitors’ offerings and new technology that could change