In business, longevity is key to survival. The longer a business has been around, the more likely it is in to remain. Two thirds of new businesses survive two years, but only half of that make it to five years, and just one in three reach a decade.
And with cash flow problems accounting for 82% of business failures, it pays to strengthen your bottom line when you’re able to. Expansion - if you’re ready - is a good way to do just that. But how do you know when your business is ready to expand? It can be difficult to judge when the time is right. You don’t want to risk premature action, but neither do you want to miss the boat.
Signs your small business could be ready to expand
With this in mind, we’ve looked at some of the strongest indicators that your small business is ready to expand, whether that’s by hiring new employees, expanding your product lines, or securing new premises.
You have a strong customer base
If your business has a steady volume of customers and income, ideally from some amount of repeat business, you’re generally in good shape. Repeat business or regular habits can show that your customers have started to rely on you and once you’re a fixture in their lives, you can more reliably expect them to stick around!
This would suggest you’ve found the right “fit” for your product or service, and this is a crucial factor in a business’s success. In fact, 42% of startups fail because they lack this product or market fit.
If your services are in high demand, perhaps even to the point of having to turn down business, then you can feel confident you have a solid customer base on which to build. The challenge now is choosing how to take on more customers, by either increasing your capacity or serving your existing customers more efficiently.
Your customers would recommend you
This metric is known as Net Promoter Score (NPS) and the Harvard Business Review called it “the one number you need to grow”. Answers to the simple question of “how likely are you to recommend us to someone else?” are a very strong indicator of loyalty and correlate well with business growth rates.
This question has been shown to be more effective than customer satisfaction rates, which can be artificially inflated - especially if salespeople have a vested interest in them - and retention rates, which don’t have as much influence on growth, unlike the recommendations this metric considers. If your customers are passionate enough to recommend your business, the social proof this offers will go a long way towards future growth.
The finances look good
If the market has accepted your product, they’re willing to pay well for it, so a high profit margin is a key figure to keep track of here. As businesses grow, they are able to increase efficiency through economies of scale and refining their processes, so even if you’re not bringing in more money, your profits can increase.
If you’re making a healthy profit, the next thing to consider is whether you have the capital to expand. There are a lot of upfront costs in hiring, launching products, or ramping up marketing efforts and many of these won’t pay immediate dividends, so you need to be confident that your business has the financial stability to keep things ticking over smoothly while you pour money and time into the expansion.
Your industry is growing
Sometimes, growth in your sector presents enough of an opportunity to justify an expansion that could profit from it. While this isn’t a sure fire sign that you should expand, things are clearer when business is going the other way. If your industry looks set to stagnate, perhaps with the advances in AI or another disruptive technology, then it may be unlikely to support your business in the future, let alone an expansion.
If all these signs look good for your business, expansion could well be a viable option. For many businesses, that will mean taking on extra employees to boost their capacity and serve more customers. But before you do so, there’s one more question to ask, which we’ll cover in the next post: Is your team ready?