Should I grow my business?

Growing a business is a strategic goal for many ventures, but it isn't always easy. You should only grow your business when you have clear reasons to do so, and the right indicators show that you are ready to achieve and sustain growth.

Reasons to grow your business

There are several reasons that motivate most businesses to grow. These include:

• higher profits - increase in sales usually leads to more revenue
• more customers - the volume of customers may give you greater security
• cost savings and efficiencies - achieved through economies of scale
• greater market dominance - to guard against smaller competitors
• risk mitigation - achieved through diversification of production and sales

Read more about the advantages and disadvantages of growing your business.

When is the right time to grow your business?

Over their lifespan, businesses go through several phases. It takes a while to start a business and get it established. Then you need to decide whether to continue to run your business as it is or to grow it. This will partly depend on your business goals and exit strategy.

Trying to grow too early or trying to grow when your business is busy with other things - eg the development of a new product - can be a mistake. Make sure that if you do decide to grow your business, you expand at the right time.

Types of business growth

As well as your timing, it is also important that you choose the right sort of business growth. You can grow organically by selling your existing products to new markets or by selling new products to your existing customers. Alternatively, you can grow rapidly by buying another business. Learn more about rapid and organic business growth.

SWOT analysis for business growth

To make sure that you go for the right sort of growth, at the right time, you need to work out how your business is currently performing. There are several ways to do this and one way is to perform a SWOT analysis, which stands for:

• Strengths
• Weaknesses
• Opportunities
• Threats

See a SWOT analysis example.

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

For many businesses, growth signals success. It creates new opportunities, brings in more customers and generates greater profits. However, expanding your business isn't without risks. You should carefully consider the pros and cons of expansion before pursuing business growth.

Advantages of growth

Possibly the greatest competitive advantage of business growth is the ability to capitalise on economies of scale. As you increase your production output, you can bring down costs per unit and achieve savings across:

• purchasing - by getting discounts for buying in bulk
• marketing - by spreading the cost of promotion over larger sales
• overheads - by spreading the staff or administrative costs across a greater output

Business growth can also enable you to:

• increase your resources and stock
• generate more sales and profits
• reach new customers or markets
• put more money back into your business
• influence market price
• reduce external risks (eg from competition, market or technology changes)

Expansion can also give an impression of greater financial viability of the business. Financial institutions often see larger businesses as more credible and stable than their smaller competitors.

Diversifying into new markets, products and services means that if one part of your business is exposed to market changes, you can rely on other income streams. 

Disadvantages of business growth

Larger businesses tend to be more complex than smaller businesses. Some of the common disadvantages of business expansions are:

• shortage of cash - you may need to borrow money to meet expansion costs, eg buy new premises or equipment
• compromised quality - increasing your production output may lead to a decline in quality, which can lead to loss of customers or sales
• loss of control - as your business grows, you may need to delegate management duties or divide the workloads between different locations
• increased capital requirements - a larger business means a larger workforce, more facilities or equipment, and more investment
• increased staff turnover - for example, if staff are given extra work, their morale could drop, their productivity could decrease or they could leave your business

It's important to understand that growth can be a disruptive force. It can affect every single aspect of your business and put pressure on your staff, resources and finances. This is why you need to plan carefully and ask yourself the key question - is my business ready to grow.

If you're ready, follow some tried and tested tips to help you prepare your business for growth.

Determining the best way to grow your business requires a strategic plan and a good understanding of the different ways a business can grow. Slow, organic business growth is basic, but arguably the most effective means of growth. Rapid business growth, on the other hand, may be more profitable but often involves significant risks.

It is worth considering all types of business growth when assessing the best route for expansion.

Organic business growth

Organic growth typically takes longer than other growth strategies but tends to be safer. This is because you are growing by doing more of what you are already good at. You also have more time to develop the right capabilities to support and manage your expansion.

You can follow several paths to achieving organic growth. You can grow organically by selling:

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

In order to sell your existing product range to new customers or in new territories, you may simply need to launch an advertising campaign or expand your sales team. See more on market research and market reports.

If you decide to use new distribution channels, make sure that this generates new sales rather than simply takes sales from your existing distribution channels. Find out how to increase your market share.

Another way to grow organically is to sell new products to your existing customer base. For example, if you are a travel agent you could also start selling travel insurance to your customers.

Rapid business growth

Rapid growth occurs within a short time, often in response to an unexpected opportunity or a successful growth strategy. In this period, your staff, production levels or customers may greatly increase at speed. This can lead to certain risks and challenges, such as:

• cashflow shortfalls
• operational inefficiencies
• customer service issues
• outgrown premises

Businesses often have to take on a lot of debt to finance their growth. As well as this, fast growth increases the rate at which cash leaves your business - your costs will grow to accommodate increased demand. All this means that, if growth spirals out of control, it can put your business' financial solvency at risk.

Find tips to help you avoid problems during business growth.

One way you can achieve rapid growth whilst minimising risk is by buying another business. You could buy the whole business or you could just buy 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.

Growing a business is exciting but it will only be worthwhile if you can actually achieve and sustain growth. Before you rush into things, ask yourself first - is my business ready to grow.

If you have decided to grow, there are several things you will need to consider.

Finding new business premises

Firstly, you may need larger business 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.

Finding new employees

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

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

Read more about your options when recruiting staff.

If you are growing by buying another business, you may be legally responsible for the staff from the business you are buying. Read about the responsibilities to employees if you buy or sell a business.

Scaling up your IT systems

You will also need to think about your IT systems. 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

See how to plan your business IT systems.

Finding finance for growth

Sustainable growth will need an investment of both time and money. If you are growing, and especially growing rapidly, you may find that the increased demand is affecting your cashflow. Learn the basics of cashflow management.

There are many reasons why a growth strategy can cause problems for a business. Common challenges of growth include:

• poor market research
• insufficient planning
• drop in customer service levels
• lack of control
• inadequate management systems
• staff morale affected by increased workloads

Below are some key pieces of advice to help you overcome the challenges and problems associated with growth.

Plan your business growth

Poor planning is one of the main obstacles to growing a business. You should research the market you intend to break into thoroughly and don't set your sights too high. 

Financial planning is also vital. You have to invest money up front during the growth phase and the return on that investment can take a while to be realised. See more on financing growth and how to prepare a business plan for growth.

Maintain business relationships

It is also important that you don't forget to look after your existing customers while you are looking for new ones. Your competitors won't stop trying to take business away from you. Make sure you maintain your customer service levels and communicate with your customers regularly if it's appropriate to do so.

Another common problem during business growth is poor control, especially in the supply chain. The relationship with your suppliers is likely to be under strain during the growth phase. You may require increased stock, raw materials and other assets, so you need to ensure you have systems in place to manage all of these.

Manage and motivate staff

Employees are important in any business, but during the growth phase, you may need to hire additional staff. It is vital that you get the right people, so allocate enough time and resources to select skilled staff and train your new recruits.

You will also need to manage your existing staff carefully to ensure that your growth strategy doesn't lower their morale. To lead your staff through growth, communicate with them regularly, be clear on what you are trying to achieve and what you expect from them.

Manage your own workload

Finally, when a small business grows, the owner's workload increases. The larger the business, the more time it takes to manage it. Consider which of your tasks you can delegate to other members of your staff in order to free up your time to concentrate on key issues.

See more tips on how to grow your business successfully.

Watch this short video tutorial to understand what you should consider before growing or improving your business.