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Why Creating a Business Expansion Plan is Critical

Do you have a business expansion plan? Discover why creating a business expansion plan is critical for growth. Review the Fresh Insights article.

Expansion is a goal of many middle-market companies. When done wisely, business expansion can lead to growth in sales and profits and opportunities for businesses to delve into new products, services and geographic areas.
 
But trying to grow your business and expand without a clear expansion plan can be a recipe for disaster. Business growth presents many challenges, including financing to support the required increase in inventory and receivables. It’s not uncommon for companies that haven’t planned carefully to grow themselves right out of business.

 

Have a Plan

“The current economic environment is conducive for middle-market growth and expansion if a company has a solid expansion plan,” says Cadence Bank Senior Vice President Fermin “JJ” Miranda. “However, businesses shouldn’t just expand for the sake of expanding.”

 
A comprehensive business expansion plan will detail exactly how your company will achieve and sustain long-term growth. There are two main business expansion strategies: expanding organically or expanding by merging with or acquiring another business (or by M&A).
 
There are several different routes you can take to expand organically, including:
 
• Creating new products and services. This is probably the first strategy most owners consider when they think expansion. The key to success is conducting thorough market research to determine which products and services your customers may actually want to buy from you — and which ones you can sell at an attractive profit.
 
• Deepening penetration into your existing markets. This involves selling more of the products and services you already have to your existing customers. Start by performing a market segmentation analysis that divides your customers into segments so you can analyze sales and profits for different customer segments. This will help you determine which customers you should target with offers for specific products and services.
 
• Expanding into new markets. With this strategy, you will strive to sell your current products and services to customers in new niches or different geographic territories. You should perform meticulous research on any new markets before committing financial and human resources into expansion efforts.
 
• Developing new channels. One of the best examples of this business expansion strategy is the Internet. Numerous industries, from travel agencies to independent bookstores, have been turned completely upside down by this new sales and delivery channel. Are there new channels, whether online or in the physical world, you can use to increase sales and expand your business?
 
“Strengthen what your business is doing now before you embark on organic expansion,” adds Miranda. “And consider speed to market: How quickly will your organic growth efforts add to your bottom line?”

 

Expansion by M&A

 This strategy is fundamentally different from organic expansion. It involves merging with or acquiring another business — either a competitor (which is known as a horizontal merger) or another company along the supply chain (which is known as vertical merger).
 
Expanding via M&A can result in turbo-charged growth — you could literally double the size of your business overnight. The key to success is realizing the synergies that exist between the two companies and making them a reality in the new merged entity, says Miranda.
 
“Also be sure to perform thorough due diligence on a company before moving forward with a merger or acquisition,” he adds. “Sometimes owners rush into a merger without taking the time to dig deep into the company they want to acquire.”
 
Look especially close at the finances, as well as the strength of the management team, how well-trained the workforce is and how solid existing contracts are. “You can still move forward even if you have concerns,” says Miranda. “But at least you’re going in with your eyes wide open.”
 
Read also: How To Grow Your Business – Instead of Growing Yourself Out of Business
 
For assistance in financing your expansion, contact Cadence Bank. Our business bankers specialize in helping middle-market companies analyze expansion opportunities and then plan for a successful execution.
 
This article is provided as a free service to you and is for general informational purposes only. Cadence Bank makes no representations or warranties as to the accuracy, completeness or timeliness of the content in the article. The article is not intended to provide legal, accounting or tax advice and should not be relied upon for such purposes.


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