Growing your Business – Deciding whether to grow

Deciding whether to continue to run your business as it is or to expand it will partly depend on what you intend to do with your business and what your exit strategy is.

If you do decide to grow the business, you will want to find the right time.

It is also important to choose the right sort of growth. For example, you could chose to grow organically - by selling your existing products to new markets or by selling new products to your existing customers - or you could chose to grow rapidly by buying another business.

Most businesses that grow successfully do so by working out what they do well and then doing more of it, so it is a good option knowing what your strengths are.

How a SWOT analysis can help

To find out if it's the right sort of growth, at the right time you might chose to perform a SWOT analysis.

• Strengths
• Weaknesses
• Opportunities
• Threats

A SWOT analysis will help you identify what your strengths are and what opportunities are available. Once you have identified these you can decide what sort of growth to go for.

Identifying weaknesses or threats will allow you to select the right time for your business to grow.

As well as analysing your own business, you could examine the market you operate in and your competitors.

There are advantages and disadvantages to growing your business. Some businesses go for years without needing to grow, while others are constantly looking for ways to expand.

Advantages of growing a business

Being a larger business means you can take advantage of economies of scale. Larger businesses can often get discounts by buying in bulk and get better credit terms from suppliers.

Another benefit of growing your business is that some people believe that larger businesses are more secure than smaller businesses - so more likely to be around throughout the lives of their products to supply spare parts and honour guarantees etc. If you grow your business you are likely to sell more products and services to this market segment.

A larger turnover can also mean a greater potential for profit, although this depends on your profit margin.

Disadvantages of growing a business

Larger businesses tend, inevitably, to be more complex than smaller businesses. This can make the management of the business more time-consuming and expensive. So you may need to delegate some, or even all, of the management. As a result you could lose some direct control of your business when it starts to grow.

It can be more difficult to give a personal service as your business grows. Small businesses often provide a one-to-one service to their customers, but might not be able to deal with every customer personally once they have grown. Growth could mean having to make alternative arrangements such as recruiting extra customer services staff, or providing extra training for your existing staff.

There can also be cashflow problems. You may need to borrow money to buy new premises and equipment and if you plan to sell more products you could well need to spend more money upfront to make them.

A business can choose to grow slowly but steadily, or it can try to grow quickly. Rapid growth may be more profitable, but is often achieved through moving into new, untried areas - so it is rarely as safe as slow but steady growth.

Rapid growth

One way to achieve rapid growth is by buying another business. Which could mean the whole business, or buying just part of it. The business could be one of your competitors, or it could be a business that would complement the range of goods and services that you supply.

Find guidance on mergers and acquisitions.

Organic growth

Organic growth typically takes longer than growing by buying another business, but can be safer. Organic growth can include selling:

• your existing product range to new customers
• your products in new geographical areas
• via additional distribution channels - e.g. the internet or a wholesaler

In order to sell your existing product range to new customers or extend it to new geographical areas, you may simply need to launch an advertising campaign or expand your sales force.

If you decide to grow organically by using additional distribution channels, be sure that this generates new sales rather than simply taking sales from your existing distribution channels.

Another way to grow organically is to sell new products to your existing customer base.

If you have decided to grow, there are a number of things you might want to consider.

You may need larger premises to:

• store extra raw materials and finished stock
• accommodate new staff
• house any extra machinery that you will need
• accommodate extra visitors that may come to your business premises

You may be able to extend your existing premises to give you this extra space. Alternatively, you might need to consider moving to larger premises.

You may also need to hire additional staff. If you are growing organically consider allocating resources to:

• advertise for staff
• conduct interviews
• train your new recruits

If you are growing by buying another business, The TUPE (Transfer of Undertakings (Protection of Employment)) Regulations 2006 hold businesses responsible for the staff from the business they are buying.

What about your IT systems? Maybe you should consider whether you need to:

• upgrade your accounts, stock control and customer relationship management systems
• buy additional licences for your existing software
• expand your IT network

All of this will need an investment of both time and money to ensure that your business has the cashflow it needs to grow strongly.

There are a number of reasons why a growth strategy can cause problems for a business. Here are some key pieces of advice.

Plan your growth

Poor planning is one of the main causes of difficulties for a growing business. Thorough research into new markets can help with good planning.

Financial planning is also vital - because you have to invest money up front during the growth phase and the return on that investment can take a while to be realised.

You could read guidance on preparing a business plan for growth.

Existing customers, suppliers or your staff don't want to be neglected:

Continuous care of your existing customers could stop your competitors from taking them away from you. Maintain your customer service levels and communicate with your customers regularly if it's appropriate to do so.

Effective control is another vital element of successful growth. The relationship with your customers and suppliers will be put under some strain. You may also have increased stock, raw materials and other assets. Having systems in place to manage all of these is essential.

During the growth phase you could be hiring additional staff and it is vital to get the right people. Spending enough time interviewing and training your new recruits once they have been appointed will pay dividends.

Careful staff management will contribute to higher morale. It's important to communicate with them regularly to make sure they understand what you are trying to achieve and what you expect from them.

Manage your own workload

When a small business grows, the founder's workload increases. This is because the increased complexity of the business means that managing it takes more time. You should consider which of your tasks can be delegated in order to free up your time to concentrate on the most important issues.

You can find more information in our guide on meeting the challenges of growth.