During a long economic downturn, it is easy for businesses to fall into the trap of keeping profits and sales targets so low that they can survive until the economy improves. Whilst this is a good policy for a while, it is easy to fall into the trap of running a business as though it will always be operating in a recession.
If there is one thing that can always be guaranteed in business, it is that every economic boom and every recession eventually comes to an end. Successful businesses have excellent antennae about making the switch from survival mode to expansion mode. They keep a close watch on the key economic indicators and act decisively to expand their business at the right time. This puts them in a better position to take advantage of an increase in business as demand improvements across the economy.
As a result, they do more business and less problems in the quality of service than their less agile competitors who fail to increase their staffing levels to agree with the demand. Business growth should be planned, not just allowed to happen organically.
There are five good reasons to expand a business:
- It can improve the financial stability of your business – expansion usually means winning new customers or moving in to other sectors, so that you have "less eggs in one basket".
- It improves your level of service – the more clients, sectors, employees or customers you have, the greater the knowledge base in your business and the better the opportunities to develop processes and systems which improve the quality of service to your customers.
- It helps you to reduce costs – the bigger your business, the greater the buying power you will have for the raw materials, goods and services that you buy.
- It helps you spread your overheads – the bigger your business, the greater the opportunities to spread your overheads over more units of sales.
- It helps you to improve your profits – if you are able to improve your purchasing power and spread your overheads across more units of sales, this gives you a lot of flexibility in the way that you price your products or services and provides you with an opportunity to increase your net profit.
Growth is not a magic formula for a business. On the contrary, if you try to expand a business that is not run efficiently, the problems will get worse. However, well planned expansion can lead to a very significant increase in net profit and can help to recoup the losses or low margins of the long years in recession.