Checklist before expanding your SME

Growing a business into a big empire is one of the end goals for most entrepreneurs.

However, there are different factors which need to be taken into consideration before one can expand their small and medium-sized enterprises (SMEs).

Palesa Mabasa, SME funding business development head at FNB Commercial, says the decision to expand a business must not be taken lightly.

“Expanding too quickly or without proper preparation can lead to a host of challenges that could ultimately harm your company’s success.”

She says before expanding your business, you need to go over a checklist that includes if you can handle the increased demand and if you have established a strong support network, amongst other things.

Can you handle the increased demand?

The moment you decide to expand your business, it means you will have to meet the needs of a larger customer base. Mabasa says this can be from expanding procurement of stock and services, which will place an added demand on your cash reserves, potentially putting your cash flow and standing with your suppliers at risk.

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She warns business owners that failing to make payments can destroy relationships and create long-term procurement problems. “The additional demand that comes with expanding your business will not only be financial but also on your place of operation.

There will need to be enough stock rooms, floor space, and fleet, as well as a team of well-trained staff that is ready and able to support the growing business.”

Are your suppliers up to the task?

“Reliable suppliers are essential to the success of any business, but even more so to a growing one,” she adds.

An increase in demand will also be faced by your suppliers, as they will need to provide your business with an increased level of goods and services.

However, your suppliers need to be able to deliver an increased level of goods and services cost-effectively and on terms that benefit your company.

“Customers don’t care that a supplier let you down – they see it as a failure to deliver on your part. So, it is vital to assess your current suppliers and, if necessary, seek out new partnerships that align with your growth objectives.”

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Is your governance framework robust enough?

When you expand your SME, there will be a need for comprehensive policies, procedures, and legal compliance. Mabasa advises business owners to review their governance structures and ensure they can accommodate the increased complexity that comes with expansion.

“This may involve updating existing policies, creating new ones, and seeking expert advice to ensure you remain compliant with all relevant regulations.”

Have you established a strong support network?

“No successful business, or business owner, operates in isolation,” says Mabasa. She says it is important for one to surround themselves with a network of trusted and experienced professionals, which can range from people in finance to those in legal.

It is also important to have banking partners who understand your aspirations and your business. “These relationships are an invaluable source of guidance and support as you navigate the complexities of growth.”

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Are you prepared to manage a growing team?

To meet the increased demand that comes with expanding the business, you would need to hire more staff. For your business to run smoothly and successfully, you will need to find a way to effectively manage your team.

“It is advisable to get a dedicated human capital management specialist, or even an HR department to ensure that your team is managed to the best.”

This goes hand in hand with ensuring your governance framework is robust, because you will have to ensure that all HR policies and processes are clearly defined and that you have the resources in place to support your employees’ professional development and wellbeing.

Have you considered the potential impact on your brand?

Expanding your business comes with reputational risk. Mabasa says this is usually the issue because as a business owner, you will have less control over how your business and staff interact with the market and customers.

“It’s crucial to consider the potential impact on your brand and have a plan to mitigate any risks. This may involve investing in brand management, customer service training, and implementing robust quality control measures.”

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Are you mentally and emotionally ready for the challenges?

“Running a growing business can be incredibly demanding, both mentally and physically.” There will be times when one needs to sacrifice personal interests and time with loved ones. You will need to be honest with yourself about your state of readiness to take on these challenges.

“You will need to develop a clear plan to maintain a healthy work/life balance, which can include delegating responsibilities, setting boundaries, and prioritising self-care.” While expanding your business is an exciting prospect with the potential for long-term benefits, it also presents many risks.

Thus, the idea to expand must be approached with realistic expectations, a level head and plenty of preparation.