The pros and cons of business expansion
If you’re considering expanding your business, first thing’s first: congratulations! Your company has garnered enough success or sold enough products that you’re hoping to invest in your process and bring in even more revenue. Whether expansion looks like leasing an office location or further investing in technology to make your job easier, not everyone who owns a business makes it to this step.
However, before jumping right in and spending additional assets, it’s crucial to contemplate if business expansion is the next best move. With any major decision, there are both pros and cons to explore and understand.
Below, we’ve listed the pros and cons of business expansion so you can make the best-informed decision before potentially investing in new property, people, and more.
Especially with real estate, business expansion is an exciting idea for all of your company. Picking an improved office location for your business can provide you the opportunity to grow your employee base, present your current hard workers with a better space to complete their work, and even advertise your business in your new local area.
Or maybe you’re deciding to move from leasing your office building to owning. That’s another excellent opportunity for business expansion. Owning your office gives you the freedom to renovate the building into your business’s dream office, saving you money later down the line.
You increase your economies of scale when expanding your business to generate more products and/or reach more consumers. Economies of scale is a scale comparing your cost to create a product versus how product your business has been. Increasing this scale means your average price per product decreases while your level of productivity increases.
Here’s a great example. You start your small business in your home, embroidering sweaters and selling them online. When you eventually obtain enough customers, you can hire more workers and technology that can help you produce more sweaters more easily. Not only have you expanded the number of products you make, but you’ve also been able to supply talent and items that increase your productivity.
When you expand your business to create additional products, you’re giving yourself more opportunities to expand and grow. Or, if you’re building or renting a bigger office space, you can hire more employees. Adding more talent to your team or creating more products means you have to rely less on what you’ve already developed, giving yourself a higher chance of success.
The more assets you have, the more they’ll be able to work together towards a singular goal: allowing you and your business to thrive.
When you expand your business and generate more revenue, you see a return on investment in some risks you took when starting your business.
Let’s say you had to take out a loan to get your idea off the ground or purchase real estate for a location for your business. Creating more products and generating more revenue means producing more income, allowing you to pay back any loans or investments you made at the start.
If you’re planning to expand your business by renting or buying a new office location, pick a building that will help your team and positively affect your future. For instance, you don’t want to select a place that will make it significantly harder on your employees’ commute. Nor do you want to choose an office that isn’t best for your long-term growth and only offers temporary solutions.
Picking the wrong real estate option when expanding your business can lead to a loss of investment and overall team camaraderie. We encourage you to take your time and lean on your employees’ thoughts and opinions while shopping for an office to avoid this con.
You’ll likely have to invest and assume debt to expand your business. While considering expanding your business, ask yourself if your company is truly ready to make a significant investment like that. Do you feel you have enough money to spend improving your employees and business while leaving enough for an emergency? Do you believe moving to a new office building will positively affect your company and your economies of scale? Will you be risking burnout with your employees by increasing your demand?
If there’s a chance you don’t have enough of a foundation built up beneath your business before taking the next big step, then it might not be time to expand. The last thing you want to do is rush into this exciting but stressful process too early, leaving your revenue and employees’ mental health at risk.
Are you hoping to expand your business by planning to move your company into a new real estate option? Consider withco’s lease-to-own model. Our mission is to help small business owners excel in their environment.
