The Transition Moment: How to Know When You’re Ready to Expand Your Business

Learn how to recognize the eight signs that you might be ready to expand and invest in your company’s next stage of growth.

So business has been brisk this past year – congratulations! Give yourself and your team a well-deserved pat on the back.

You’ve probably begun tossing around ideas for continuing to grow your business, perhaps by expanding into new markets or upgrading your office space. But coming off a particularly good year isn’t enough to warrant an expansion. Instead, you need to carefully plan for small business growth. Expand too fast without a clear roadmap to success, and your company could fall flat. Before you can make such a bold move, you need to ensure you have the necessary cash flow, support staff, and infrastructure to carry the company through.

Likewise, throwing a bunch of untested ideas at the wall and hoping one sticks is no way to grow a company. A wiser move is to research market demand before adding any new goods or services to your list of offerings.

We spoke with some small business owners about how they successfully expanded during their first few years. Below are eight signs that it might be time to expand and invest in your company’s next stage of growth:

1. You can’t keep up with customer demands

Has the number of customers beating down your door grown exponentially during the past year or several? If so, it may be time to purchase additional equipment, open a second location, or increase your team so that you can better serve your customers.

This may mean duplicating the business model you’ve mastered at your first location in another geographic region where you’ve been flooded with customer inquiries. Or it may mean beefing up your inventory to fulfill more wholesale orders. No two expansion roadmaps are identical.

2. You’ve done the market research

Clients clamoring for extra products and services you can well afford to provide is a good indicator that it’s time to expand. But if you’re not sure customers want to buy additional offerings and how much they’re willing to pay, you’ll need to turn to the marketplace for input.

Take Steve Ryan, founder and CEO of RyTech, LLC. Before expanding to Milwaukee and the Washington, D.C. area, Ryan conducted market research to determine where to open additional offices for his Chicago-based digital marketing agency.

“We started with a competitive analysis to identify key local competitors, market share, and business development opportunities,” said Ryan, whose six-year-old company employs a dozen people. He also assessed which of his clients were interested in engaging RyTech’s services in the company’s new target market and recommending the company to their local colleagues. “[W]e’ve found easier market penetration when we have an existing client base,” Ryan explained.

3. You need more people to get key business functions done

Perhaps you’re looking to step up your marketing efforts and would like to hire a couple new web designers. Or you’ve gone from a team of five to 25 in the past two years and find yourself in desperate need of an HR person. Or you can no longer handle the day-to-day financial forecasting and need a CFO to step in.

“It’s a fine line and balancing act between working your staff too hard to being overstaffed and knowing when it’s important to make the next hire,” Ryan said. Not only do you have to weigh how overtaxed your team is, but you also have to evaluate sales forecasts, profit margins, and the revenue you stand to gain by adding to your team, Ryan said.

4. Your physical footprint is bursting at the seams

Deciding when to graduate to a larger warehouse, storefront, or office can be just as much of a balancing act as growing your team. But if your conference room has become a spillover office for your latest hires and your lunch room is standing room only, it’s probably time for a bigger location.

RyTech opened a second Chicago office in the suburbs when headcount began to exceed desk space at its first location. But just because you need to expand your space doesn’t mean you need to double costs. To save money, “[w]e tend to stick to coworking communities and shared office space so that we have fixed overhead and supplies and an extended community,” Ryan said. “This allows our team to collaborate with other businesses on projects.”

5. You’ve been offered a partnership you can’t refuse

Maybe a household-name brand in your industry has expressed interest in buying your company. Or maybe a competitor has proposed a joint marketing opportunity or a merger or acquisition. Whether calculated or unexpected, some opportunities may sound too lucrative to pass up.

But before you sign on the dotted line, be sure to do your homework: Research potential partners exhaustively. Consult with seasoned mentors, attorneys, and financial advisors. And carefully consider the legacy you want for the company you’ve built.

6. You’re implementing new processes to match your larger size

Operations, human resources, and workflow will look and function differently after your company expands. Don’t wait until issues arise or attempt to invent new processes on the fly. Better to anticipate potential problems with each facet of your burgeoning business and hammer out how you’ll manage any growing pains ahead of time.

7. You can afford the investment

Crunch the numbers and consult with your financial advisors before you expand to make sure you can afford the cash outlay as well as the time it takes to recoup your investment. Some growth investments can take a year or two (or more) to bear fruit. It’s important to ensure that your business won’t go belly up in the meantime.

Paige NeJame, owner of CertaPro Painters, a franchise business based in the greater Boston area, budgets for any new staff, technology, and infrastructure needs at the start of each year without expecting to see a return on those investments in the same year. Consider the new salesperson she hired in 2017 to handle all residential painting contracts.

“Most of the profit made from this hire [last year] only covered the budget we had for training him, buying a new vehicle and computer, and paying for rookie mistakes he made,” NeJame said. “This year I expect to recoup those upfront costs and raise my overall company profit.”

8. You’ve set milestones to measure your success

Perhaps you expect to double your revenue within the next two years or grow your customer base by a factor of five. Set tangible goals to measure whether your expansion lived up to your expectations and so you can create a blueprint for future successful growth.

For example, NaJame knows that with proper training, a new sales hire can increase her revenue by about 15 percent after one year and about 25 percent after two. “I use this rule of thumb to help me set sales goals, which I track weekly to be sure [a new hire] is hitting them in both the first and second years,” NeJame explained.

Though all of these scenarios are good indicators that you should consider expansion, remember that every expansion is different and you’ll need to determine your exact business needs. Analyze where your business is currently at and your future goals, and make a plan for how you’ll get there. Expansion just might be your next move.

This article is intended for informational purposes only. Readers should consult their own financial advisers, attorneys or other tax advisors regarding any financial or tax strategies mentioned in this article.

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