It may be logical to think of growing your business only when it has become profitable, but it won’t hurt to plan for expansion when you’re just approaching breakeven. Planning for expansion includes checking on your operations daily and how your business uses its resources; this will help you develop some level of foresight that will be useful when handling bigger deals. Sustain relationships with suppliers and probable partners you can continue to work with when you’ve become bigger.
In addition, look at these external indicators that will help you know which aspects of your business you must prep for expansion:
1. Business climate
Because no business exists in a vacuum, your enterprise, just like everyone else’s, is affected by factors including the state of the economy, episodes of boom or bust in your industry, competition, and even politics. While learning how to run your business smoothly, study the market as well by tuning in to relevant business news and observing emerging trends.
2. Solid foundation
The capital expense and effort you need to expand will strain your resources, so check if your company is well supported by either your original capital or your subsequent profits.
The best time to consider expansion is when your personnel have been both very productive and very keen on helping your business succeed. One way to ensure employees get all the motivation to cooperate in an expansion effort is to make them share your goals and show them that they have a future with your company. “Tell them what their career will be, and not just their job,” says Samie Lim, considered the “Father of Franchising in the Philippines.” “The most important thing is to show them that they have a future in your company—what is there for them for the future and not just for now.”
4. Sufficient output
Effective expansion relies not only on sustaining your current level of production, but also your ability to scale that up to meet the needs of your expanded market. If you can project strong output for the next year or so at the rate you’re currently growing, then you’re ready to go. Otherwise, improve your production process first.
5. Sufficient market demand
Expand only if you can see that your target clientele really would want more of what you offer. The most effective and profitable businesses are those that recognize and then cater to unmet needs. As real-estate executive Francisco Licuanan III puts it, it could be that “what matters is not so much the industry but the competitive situation for a product.”
Not limited to your first million in profit or the industry awards you receive, milestones in business also include a breakthrough product or service you launched or a valuable partnership that enhanced your brand equity. All of these boost the employees’ morale, so learn how to channel renewed enthusiasm to push everyone to meet bigger goals or go after bigger opportunities.
7. Years in business
Expanding too soon can lead to dangerous risks, but how soon you’ll know where you stand depends on the kind of industry you’re in. The tech industry has seen month-old ventures change the game, while food enterprises might need more time to build a loyal following. In any case, look at promising starts with critical eye, and see if they’ll last into a reliable pattern that you can later build an expansion on.
8. Innovative ideas
Remember that expansion isn’t simply doing the same thing with twice the output at lower costs. More than efficiency, expansion is about making that output relevant to a changing market. “Have the foresight and common sense to spot trends and implement changes,” says Wilfred Steven Uytengsu Jr., president and CEO of milk products giant Alaska Milk Corp.
This story was originally published in the April 2013 issue of Entrepreneur magazine.