6 Questions To Ask Before Expanding Your Business

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Written By Loanbuddy Singapore
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6 Questions To Ask Before Expanding Your Business

When a business performs well and achieves profit targets, expanding it is the next thing any business owner would want to do.

If you are an entrepreneur and you have dreamt of taking your business to new heights like other SME business owners, then this article is a guide to understanding the key considerations before going into expansion.

Business expansion, as fancy as it sounds, can be a stressful process if done without proper planning and execution. There are three steps involved in any business expansion, namely:

  • Planning;
  • Forecasting and budgeting;
  • Seamless Execution.

Planning for your business’s expansion and growth involves a heavy amount of due diligence. This comprises many parts of research, such as a market trend study, a study of competitors, and a study of market cap.

Whether you are expanding your current business location or opening entirely a new establishment, ask yourself these 6 questions before going forward.

Question 1. Is it the right time to expand my Business?

Time is the first important aspect before putting any expansion plan into place. Plenty of startups in Singapore had innovative ideas, yet their businesses failed because they were too early for the market.

Those ideas were later adopted by giant players and became successful. Why?

It is just about the timing of the product; when the consumers are not ready to adopt an innovative product, it’s better to take a step back and wait for the right time.

It is great to stay ahead of the competition and take the first mover advantage. However, one must have enough research on the consumers’ behavior to adapt to changes. 

Think again now! Do you have enough data on paper to indicate that the expansion plan will definitely fetch growth, or are you just relying on your gut feeling that the audience will take interest in your new idea?

Besides this question, you must ask yourself about the qualitative aspect as well. Is it just in your imagination of business growth? Perhaps your current business investment returns and risks are enough for now.

There are many SMEs that take on the risk of expansion with the help of loans to infuse capital for expansion. If the expansion does not work out, what will happen to your business’s cash flow? And what if one bad decision increases the chances of personal bankruptcy?

You must be aligned with the changes your company is currently experiencing. Going too fast may give high returns or even excessive growth to the business, but a single downfall can destroy the company’s whole existence in a short period of time.

So, timing is very crucial, and you are supposed to be very skeptical about the market timing before expanding your business.

How to set up your business in Singapore

Question 2. Do I have the capacity to hire new talent?

It doesn’t matter how enthusiastic and energetic you are as an entrepreneur; you will always require the right and talented people to execute the expansion idea.

There’s no way to expand a business without bringing new staff on board. When you really want to expand, you will only want people who are as dedicated and trustworthy as you are. For all this, you need to hire the right talent to fit into your business culture and vision. Attracting and retaining the right talent is a task that requires strategies and methods. You must know the tips and tricks for attracting and retaining talent in Singapore.

For the purpose of business expansion, you need people who can handle workload and work pressure without compromising on quality. 

Ask yourself whether you have the capacity to hire new staff. This includes considering a salary budget and having a robust SOP in place.

You also need to make sure the new staff is able to align and speed up the work. Don’t forget those who have been there since the very beginning. Appreciate them for their hard work and motivate them to do more. It’s absolutely perfect to allot more responsibilities to your existing team in order to achieve expansion quickly.

Once you get into expansion, you will not have enough time to look at everything closely. A bigger picture in hand gives clarity about prospective goals. Make sure to use your talented team to do essential tasks while you put your energy and time into planning and budgeting.

You must note that any non-essential work that can be handled by external agencies must be outsourced. Examples of such work include bookkeeping and payroll management.

Question 3. Am I able to create demand?

Have you analyzed your targeted market segment? Who will buy your products, and what is the TAM (total addressable market)?

If you don’t have any idea about who your target customer is, things will be difficult.

Selling an existing product or service to an existing market segment is much easier than selling a new product to a totally new market. This requires a focused assessment of consumer behavior.

Ask yourself: Are your current customers happy? The inability to address customers’ grievances is a negative point, due to which it becomes impossible to attract new customers. Have you done your customer segmentation analysis to increase your gross and net margins?

Have you considered cross-selling and selling complementary products to existing customers? What is the average customer acquisition cost in the current business? What is your market as compared to the competitors’?

These are some critical questions that need to be addressed before going into business expansion. You need to make sure you are meeting current customer expectations before addressing a totally new audience.

Creating demand for a new product is an uphill task if you don’t know how. Make sure you have appropriate salespeople on board to build traction.

Singapore is a great market to try new products and acquire new customers, but you must be aware of the macroeconomic environment. Keep an eye on whether the market is in a recession or expansion phase. Introducing new products in a recession phase may prove to be a downfall for your current business. Make sure your current business doesn’t pay the price for it.

Ask yourself whether your target customers are price sensitive or whether their demand doesn’t change with price changes.

Question 4. Have I analyzed my Business’s financial health?

When thinking of expansion, any entrepreneur has to automatically think about his or her business’s current financial plan. You will require cash for business expansion regardless of the high growth of your bootstrapped business.

You will need to check whether your cash flow is sufficient to support expansion. You are required to follow a conservative approach while projecting cash flows and make provisions for the dreadful situation that may happen in the future.

An appropriate amount of funding is suggested in times of expansion. An SME may consider financing while planning to expand the business. 

There are currently multiple mainstream banks and money-lending financial institutions in Singapore that give loans to small and medium enterprises for various purposes. Project financing is one of those you may want to consider.

If you are not ready to pay interest, equity dilution is another option you may consider. You can approach venture capitalists or individual investors to fund your business expansion. 

Apart from these 2 options, the government of Singapore has put finance schemes in place and provided government grant assistance such as the Temporary Bridging Loan Program or SME Working Capital Loan to help SMEs financially.

Before that, ask yourself: Do I need financing? What are the situations where you may need to apply for an SME loan? These situations may include:

  • To pay for raw material costs and other essential items – There can be situations where the price of essential raw materials may increase due to external economic factors, political factors, or weather events. Such incidents are not in your control and may hamper the current supplies in your business. You may consider applying for a loan in advance to cope with such situations.
  • Seasonal business requirements – If you are going into a seasonal business category, such as selling items related to New Year’s Eve or winter wear, you should plan accordingly in advance for infusing capital into such a business. For this purpose, you may go for credit facilities such as bank overdrafts during the seasonal business period to pay for purchase and selling expenses.
  • Economic slowdown or downturn – An SME gets impacted by the cyclical downturn and economic slowdown more than the big companies. If you have anticipated the recession, make sure to apply for a loan to maintain the cash flow and working capital of the business before it’s too late. Why should you apply in advance?

Most banks take more time than usual to process an SME loan application. reason being high credit risk on lending money to SMEs. Therefore, it’s better to apply early than in times of crisis.

  • Identification of new opportunities – If you have spotted exciting opportunities, you might want to take a bet on them and pivot your business in a different direction. Such directions typically include:
  • Adding a new product or service line
  • Introducing a franchise model
  • Planning for a merger or acquisition.
  • Expanding or limiting business locations
  • Backward integration

You are required to have a deep analysis of your current cash situation and then, accordingly, take steps to finance the business.

Know more on Government e-services for Your Business

Question 5. Failing to plan is Planning to fail.

Once you are into scaling your business, there are complexities waiting for you. In such a time, trusting on experience and gut feeling is not sufficient at all. You need to have processes and systems to make the expansion successful. 

Ask yourself whether your current systems are capable of catering to the needs after expansion. Do you have any processes that can be automated with the help of technology? Are there any costs that can be cut or eliminated by putting efficient business processes in place?

Besides these, one other important question that needs to be addressed is the versatility of your staff. Can they handle different tasks apart from their main roles? 

With the absence of proper internal business processes and systems, your business may decline at the time of scaling. To avoid such a case, you need to implement automated and efficient processes to save costs and grow.

Question 6. Do I have Vendor support?

When you scale your business, you will need more of almost everything. Do you have enough suppliers to meet the production plan on time?

Are your vendors capable of fulfilling your increased raw material demand? If not, you may consider having multiple vendor options without compromising on quality.

There can be chances of cash flow gaps in proportion to the increase in purchase volume as well. To mitigate this risk, SMEs have the option of trade financing to maintain their supply chain.

When you reach a larger audience, it becomes important to take proper care of their needs.

It is advisable to discuss your production plan with suppliers to assess their supply capacity and avoid any disruption in the supply chain.

Knowing your current capacity before scaling up your business in an organized manner is the first and foremost requirement. By asking yourself these six questions on time, you will be in a better position to plan for the uncertainty that a business expansion might bring. 

If you have a proper plan in place and have enough financial resources, you are good to go. Otherwise, applying for a loan is always an option in times of need.

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