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The Costs Behind Business Expansion

If you’re in a position of considering expanding your business because it’s going well, you’re in a good place.

But that’s not to say that business expansion comes without its own problems and areas of concern.

This is why it’s critical to consider several factors when you embark on business expansion.

We take a look at these factors here. 

Do your market research 

It doesn’t matter whether you’ll be expanding your business to the next neighbourhood or to another country – market research is an important part of your job in terms of business expansion.

Market research is essentially the study of your market:

  • Who are your competitors?
  • Where are they located?
  • At what price do they offer the same product or service as you?
  • Who are your customers?
  • What is your buyer persona?
  • Is there demand for your product or service in the new market?

Essentially, by focusing on questions like these, you’ll have a stronger basis on which to conduct your expansion.

Calculate your operational expenses

Operational expenses build up and you’ll want to put some time and effort into calculating them

These may range from overheads like rental, as well as utilities and an internet connection as well as phone lines.

Such expenses are going to be repetitive and you’ll need to make sure you have them covered.

You can do so either by obtaining additional financing through a credit (discussed in more detail below) or by profits and revenues that you’ve acquired over time through your initial business.

Look at your vendor relationships

 Your vendor relationships are the relationships you have with your suppliers.

These are important because your suppliers will ultimately be able to tell you whether there’s sufficient inventory and stock for you to work with.

Here’s where you’ll want to consider your current relationship with vendors.

Looking at business expansion means trying to save costs wherever possible.

Your business expansion might benefit from re-evaluated vendor relationships, as you either seek better deals from your current vendors, or look for new, more affordable ones.

Consider staffing solutions

 It’s also important to make an overview of your staff and their functions in your current business.

Do you have floor staff? Managers? People who deal with sales?

How easy will it be for you to find new employees?

Here, consider things like monthly payroll, employment benefits, insurance, health and other factors.

Your employee costs will be a recurring cost that you’ll need to be prepared for.

Also consider whether some of your existing staff will be willing to help you take your business to the next phase.

Establish your marketing and advertising strategy

 Just because your e-mail marketing and advertising strategy worked in your previous business, doesn’t mean that it will work with the new one’s expansion.

You will therefore need to look back at the first point about the market research and see who your new customers are.

Divide them in living standards measure (LSM) groups and establish your buyer persona.

This way, you can target your marketing and advertising efforts more effectively.

Consider the legalities

 Whether moving to a new country or new city, every country and municipality has their own set of rules for setting up business.

Think about hiring a lawyer on retainer or on some other payment structure to look into the legalities and compliance needs of expanding your business.

This is especially the case when moving over to a new country where new rules will apply regarding competition, pricing and other factors.

Make sure you stay within the law in your expansion efforts.

Revise your pricing to fit your expansion

 You may also need to revise the pricing of your products and services to better fit into the target market you’re approaching.

This will mean taking into consideration taxes at local level so that you can determine the best price of your products.

Another area to focus on is tariffs for imports and exports – you will need to know what these are beforehand so that you can factor their costs into your product or service’s final price.

Itemise your expenses

 Once you’ve followed each of the steps above, you’ll have a rough idea of the costs that go into your business expenses.

The next step is to put this down on paper by itemising your expenses.

Do so for your market research, legal and compliance obligations, staffing costs, overhead costs, revised pricing etc.

Create a budget

 After itemising your expenses, create your budget.

At this juncture, it would be a good idea to over-estimate some of your costs so that you are better prepared.

Small items that are unexpected always creep up into the final bill so you’ll need to make some leeway for these as well.

Figure out how you’ll finance your expansion

 As a final step, you will need to figure out how you’ll finance your expansion.

Will you use money that you’ve saved up from your current business and other savings?

Alternatively, will you approach a financial institution for a credit or loan?

In addition, once this aspect is taken care of, you’ll also want to factor in the issue of payments acceptance.

Will you buy a card machine for your business or use a softPOS payment solution which turns your phone into a payment terminal?

Which players on the market offer you instant settlement of funds and no set up costs?

These criteria are important in choosing the right payment provider for your business.

Conclusion 

As a business owner, the thought of expanding your business may seem very exciting and it really is!

However, expansion doesn’t come without drawbacks and serious cost considerations.

This is why you need to plan your expansion carefully, methodically and thoughtfully so that your new business sets sail from the get go and so that you are prepared for all eventualities related to the biggest factor of expansion – the costs.

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