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Beware of expanding too quickly. It could put you out of business. When you're expanding your business, even the best plans miss a few overlooked expenses.
Let's take the following scenario: You hired a new sales team to increase your market share and revenues. More space is needed for operations.
You lease a larger office to accommodate your new employees. Your new office needs to be decorated to uphold the new larger business image.
You will also look into getting furniture to go with the new office, not just existing or used furniture, bran spanking new!
After all, you don't expand everyday. You'll also need a new phone system put into place; everyone needs his or her own extension. All set! Ready to go! Whoops! Forgot the computers. Well, we've come this far; what's a few more computers?
Can you see how a simple expansion can cost you thousands of dollars? If we analyzed the above scenario, we would find it would be wiser to put off the expansion for at least a trial period. You have this new sales team, which hasn't produced. Will they produce? What about training?
That's a few weeks of expenses and no revenue. The safer scenario for the above example would be the following: Rearrange your office to make more room for the new sales team. Get one half of the team to come during the morning hours.
They would make their calls and be off meeting with clients early in the afternoon. The other half of the team could then come in and use the office space. As long as everyone understood it was only for a short time, until you got the office set up completely, they would probably understand.
The advantage to this scenario is you would have revenue coming in before all the major expenditure. This will minimize the risk of a cash flow problem. The second advantage is that you could regulate your sales team accordingly. You may need more or less sales people. You would then have a broader idea on how much to expand.
The above scenario is just an example. You can always find different ways of looking into expansions. When you analyze your expansions accordingly, you will not run into cash flow problems that could put you out of business. Always think through the problem.
You may want to consult your accountant on such things as buying or leasing for your expansion. He knows your situation. Since your accountant deals with these issues everyday, he may see things you don t. A rule I like to use is to set up at least 10% of the projected expansion for items that may have been overlooked. Using this rule will help overcome cash flow problems.
New Employees
Hiring a new employee means you need extra help to keep the business running. This applies sometimes, even if the new employee doesn't bring in extra revenue. The following questions will help you decide, if you should hire new employees:
How much will my business benefit from adding a new employee? Is there someone currently employed, who might be able to handle the extra work and take a pay increase?
How much more extra revenue will this business have to pull in to cover the cost of the new employee? If the extra revenue you bring in is equal or less than the cost of the new employee, then why take on the extra headache?
Equipment
When you plan to purchase new equipment, ask yourself some of the following questions, which will help you clarify your decision: Does the business really need this equipment, or do I just want it?
How will this equipment benefit the business? Will this equipment put us ahead or allow us to catch up to the competition? How much profit and time will it take to pay for the equipment? Should I buy or lease?
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