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Business Expansion: Is now the Right Time?

Mar 26, 2013

by Michael Harrison

Is this a good time to expand your business? Is it the right time to offer more services? To expand your service area? To hire new staff?

Given the world economy, you might think not but in fact, Australia is enjoying attractive growth in business expansion and new start-ups that are keeping the country’s unemployment rate at 5% as of December, 2010 – about half the unemployment rate of the U.S., which had an unemployment rate of 9.8% at the end of fiscal year 2010.

In fact, Australia’s unemployment rate declined in 2010, dropping 0.2% in the final month of the year alone. So, is this a good time to expand your current operations? Is it a good time to launch a start-up? Well, Australia’s economy is humming along nicely and when I talk to clients I hear positive news.

 

Businesses are hiring and entrepreneurs are innovating. Even rural areas are seeing business growth, particularly in the services sectors. Take a look at the numbers.

Australia’s Economy Snapshot:

  • 3.6% GDP growth on average over the past 15 years (excellent)
  • 4.75% average interest rate during 2010 (money is cheap)
  • 2.70% inflation rate in 2010 (low)
  • 13th largest economy worldwide (room to expand)
  • 21st largest importer; 23rd largest exporter (active in world economy)
  • 68% of Australian GDP is derived from the service sector (services sell)

So, what considerations should you make before expanding in this fertile economic environment?

My recommendation is to conduct a feasibility study to determine if this is the right time for you to grow your business. The numbers say yes, but there’s more to consider when preparing a feasibility study.

What Is A Feasibility Study?

It’s not always easy to predict the viability of an expanding business model. It’s even more difficult to assess the future of a start-up. However, it can be done, and it should be done.

A feasibility study may cost some time and money but it’ll also provide indicators of future success, or the lack thereof. Consider the following points when compiling data during the initial phase of any expansion plans.

Competition

How much competition will you face as you expand services or product offerings? How well established is the competition? A well-regarded competitor may prevent your business from growing at optimum speed. That, in turn, may require more capital during the first months and years.

Also, when examining the competitors, what are they doing to market services or products? Check their web sites but also keep your eye on the mail. Are they sending direct mail to end users of services? Do they advertise in local media? You can learn a great deal about your prospects simply by taking a look at the competition and how smart those business owners are at selling themselves within your region.

Market Need

Somewhat related to an analysis of the competition is determining whether your service region NEEDS another. While the web enables businesses to provide services across the whole of Australia, many service consumers want face time.

Can you determine if expansion is needed in your town or city? Sure. Just Google your service and postal code to determine whether there are enough in your neighbourhood. Even if your services are better or lower cost, it’s important to recognize that clients remain loyal to providers and, in some cases, switching from one business to another can be complicated.

Company Assets

We tend to think of business assets in terms of cash. Nothing wrong with that. Having a positive balance and increasing cash flow is, indeed, an asset. But your business has assets other than cash that should be part of your feasibility study.

One of your most valuable assets is your staff. Are they experienced? Authorities? Can they reach out to the community? What about equipment? If you plan to add new product lines or new ways of reaching out to prospects, chances are you’ll need more computers, a revised, upgraded web site, more telephone lines and other expenses. If these are already in place, you have many available assets.

In fact, when I work with expanding businesses I strongly recommend to clients that they conduct an asset inventory every six months – a head count as well as a review of aging computers, an office server that needs to be replaced and even corporate goodwill. A company with a good reputation in one area can more easily expand into new areas of revenue generation based on that rock solid reputation for quality care.

Personal Health, Age and Ambition

Don’t forget the personal side of business when conducting a feasibility study. Do you want to expand your business? Do you have the energy? The drive? The time? Or are you looking to retire in a few years?

A new business offering takes time, energy and ambition to generate reliable, viable revenue streams (unless you’re very lucky) so consider your own aspirations. If your business meets your needs and is seeing slow but steady growth, you may not WANT to get bigger.

Don’t forget to think through the impact expansion plans might have have on your family and your relationships with friends and loved ones. I’ve seen numerous instances of business owners who decide to expand to escape from difficulties at home. I’ve seen cases of entrepreneurs who decide to start their own companies, NOT because they have the need to take control of their lives but, rather, to escape a humdrum job or difficulties at home.

Even a business success won’t fill an emotional void for long. After a while, it’s just another job and if things aren’t going well in your personal life, it’s not going to get better by adding new services to distract you.

Goals

When preparing your feasibility study, determine your goals and objectives and assign time lines to each objective.

Spend more time on this section of your study than anything else to determine:

  • Desired outcomes
  • Acceptable and unacceptable risk
  • Possible changes in the economic climate in the months and years ahead
  • Changes in technology
  • Defined downside (how much can you afford to lose)
  • Flexibility in definitions of success
  • Percentages of revenue growth versus costs of expansion

Your feasibility study should predict worst case scenarios and determine whether your current business model can withstand economic downturns, loss of key staff, lending rate increases and increased costs associated with a start-up or the expansion of your existing business. If you offer more services to a broader market you’ll need more computers, more telephones, a new web site and other tools to meet your expected goals.

Plan for the worst and you’ll be prepared for success with a well-crafted feasibility study.


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