While your business may start out small, it doesn’t have to remain that way. One of the main reasons why SMEs seek a business loan is to assist with business expansion, and this trend doesn’t seem to be slowing down any time soon.

More Australian small businesses reported growth in the last year than in any year since 2014. So, what does business expansion involve? And how can you jump on the business growth bandwagon?

Keep reading our complete guide to business expansion to find out.

Business Expansion Definition

Business expansion simply refers to the growth of a business' product and service offerings.

Types of Business Expansion

When considering expanding your business, you’ll find that there are 5 common types of business expansion models. To learn more about this topic, it’s important that you know what each model is, along with what it involves.

Market Penetration: Perhaps the best-known, but most affordable method of expansion, market penetration includes expanding your consumer base in an already established market.

Market Expansion: Ever considered bringing your product into a new territory or another demographic? Put simply, this is market expansion.

Product Expansion: This is when you keep your base market, but either add new products or services to further appeal to your customers.

Diversification: Diversification is similar to product expansion, yet a lot more complicated (and risky). It’s when you offer new products to new markets altogether. For example, if a woman’s accessory label was to begin also selling men’s ties, this is diversification.

Acquisition: By acquiring an existing business (particularly a competitor), a small business can instantly increase their customer base and marketability.

Advantages of Business Expansion

Business expansion offers many benefits for small-medium enterprises, including:

  • An increase in resources and stock
  • Diversifying into new markets, products and services
  • The ability to generate more sales and profits
  • Greater credibility
  • Reaching new customers or markets
  • Reducing external risks (i.e. competition)
  • Being able to invest more in your business
  • Greater influence over market price
  • The development of additional income streams

Disadvantages of Business Expansion

Like many business-related decisions, business growth does come with some potential setbacks. The most common disadvantages of business growth include:

  • A shortage of cash flow
  • Having to buy new premises, equipment, etc.
  • Compromised quality of products or services
  • Increased capital requirements
  • Additional pressure on staff

It’s important for small business owners to understand that in order to move forward, they must often make sacrifices. The trick to determining if business expansion is right for you is to weigh up the pros and cons before making a final decision.

How to Manage Unexpected Business Growth

In some cases, a business might not intend to grow so rapidly, but will find themselves experiencing unexpected demand. To accommodate sudden business growth, we recommend you focus on the following:

Build a flexible and agile team
As a leader, you’ll need to be flexible and agile enough to adapt your vision and strategies in times of rapid growth. In saying that, you’ll also need a team of employees who are able to do the same, especially when their workload or responsibilities dramatically increase. When it comes to the unexpected challenges of business growth, the right team can either make or break you.

Focus on systems that work at scale
Becoming an overnight success is the dream of every small business owner, that is, unless you don’t have the proper systems in place to handle a rapid increase in sales. There’s no doubt that you’ll already have systems handling back-end support, fulfillment, and delivery, but can these scale to accommodate sudden growth on a large scale? If the answer is no, then you’ll have to address this as soon as possible to avoid frustrated customers and staff.

Don’t be distracted by new ideas
When your business suddenly booms, you can easily become distracted by new ideas for products or services to continue riding this wave of success. Here’s the thing though: in order for you to experience this rapid growth, customers are loving what you’re doing already. Focus on this for the time being, before making sudden decisions to diversify.

Boost your working capital with a business loan
If unexpected business growth has got you run off your feet and unable to keep up with demand, a business loan can help. When you apply for an unsecured business loan through an alternative lender such as Lumi, your acquired funds can help you hire more staff, upgrade your equipment, or purchase additional stock. Here’s 12 more ways a business loan can help you.

Is Expansion Right For You? An Analysis for Business Growth

If you’re on the fence regarding business expansion, don’t fret. The following analysis gives you the questions you need to ask yourself and your team to determine if expansion is right for you.

  1. Strengths (Internal to Organization)
    • What are we doing successfully?
    • What advantages do we have that our competitors don’t have? (i.e. resources)
  2. Weaknesses (Internal to Organization)
    • What aspects do we perform poorly in?
    • What tasks detract from what we do best?
    • In what areas can we improve and how?
  3. Opportunities (External Environment)
    • What opportunities exist for our business?
    • What trends are happening in our industry?
    • What changes are occurring with our customers (i.e. demographics)?
  4. Threats (External Environment)
    • What obstacles lie in our way?
    • Are there new competitors entering the marketplace and what is their strategy?
    • Is there a threat from planned regulatory change?

Develop Your Business Expansion Strategy

There are plenty of business growth strategies you can use to achieve your goal of expansion. Keep in mind that no two businesses are alike, so everyone’s journey to business expansion may look different. It’s important to do what’s right for your venture, whilst weighing up the pros and cons along the way.

7 Tips to Grow Your Business:

Automate
There will be some processes in your business that you can automate to scale and grow your company as quickly and easily as possible. Just one of these includes an automated sales funnel, which will not only save you time, but could dramatically boost your sales too.

Keep an eye on your competition
In order to expand and keep ahead of your market, you need to thoroughly research your competition. Not only will this give you a great idea of your competitor’s strategies, but it also allows you to determine your own point of difference. In other words, what sets you apart from the other players in your market.

Nurture existing customers whilst building your customer base
Did you know it costs up to three times more money to acquire new customers than it does to sell something to an existing customer? This is why it’s vital that you spend time developing systems that can help to nurture your existing customers, like customer loyalty programs. With an effective strategy like this in place, you then have more flexibility and cash flow to acquire new customers.

Form strategic partnerships
When you form strategic partnerships with the right companies, it opens up a whole new world of customers, sales, and profit.

Diversify your products and services
What complementary products or services can you offer to your market? Think about your target audience, as well as what their pain points are. How can you add additional value to your customers? This is a key strategy for business growth.

Acquire other businesses
If the opportunity arises, acquiring other businesses can be a quick and effective strategy for expansion, particularly when they compliment your own products or services. Take a look within your industry and even outside of it to find potential opportunities.

Keep on top of cash flow management
Unless you’re regularly managing and tracking your cash flow, you can’t expect to have a thriving business, let alone one that is able to expand over time. If cash flow management isn’t your forte (or you simply don’t have time for it), why not hire a financial professional (like an account), or even utilise cash flow management software such as MYOB or Xero?

Want 18 more ways to grow your business? Check out our helpful guide here.

How to Create a Business Expansion Plan

Like most major business decisions, growing your business requires an effective business expansion plan. To make your growth efforts as successful as possible, your business expansion plan should include these 6 components:

  • An executive summary of your whole report
  • A description of your company, including products and services
  • An outline of your expansion opportunities
  • A marketing analysis and plan of how you will achieve growth
  • A breakdown of your company's staffing needs, responsibilities, and daily operations
  • A financial plan to determine what capital is accessible during growth

Need a Business Expansion Loan?

If you’ve got your sights set on business expansion, but have a shortage of working capital, we can help. Lumi offers unsecured business loans of $5,000 - $100,000 on flexible terms. Apply online or call 1300 00 LUMI today.

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