When to expand to the next level?

Daniel Young, co-founder of property investment group Binvested, shares his personal checkpoints for successfully taking the leap to greener pastures.

Whether you are successfully engaged in a family business, partnership or are flying solo, the question will at some point arise: ‘Is now the right time to expand?’

Before you take it to the next level, here are some points to consider.

Make sure your current clients are being looked after

A lot of businesses forget about their clients when they decide to expand which leads to poor customer service.

At Binvested our clients’ results are our priority. Making sure they are well looked after and happy is at the top of our to do list.

Before we even consider expanding our business we always make sure that our clients will continue to be well looked after, that our customer service will not falter and that they will continue to get the incredible results that they came to us for.

We wouldn’t be where we are today without our clients and expanding wouldn’t be possible without them being happy with what we do.

Know your clients’ needs

A friend of mine was running a successful ‘boot-camp’ business in Brisbane.Daniel Young, Binvested

Initially he ran training sessions from his own garage and local parks, but due to customer demand, decided to lease and outfit an indoor gym space which he was locked into for three years.

His clients hated the venue which was in an industrial complex inundated with dust and pollution from passing trucks.

He lost clients because he didn’t consider the environmental needs that becoming fit depends on.

Know your business

Before expanding, your business needs to show a solid trend of consistent, yearly growth.

Regular financial modelling provides an indicator of performance and projected outcomes.

Binvested is currently preparing to move headquarters into an office four times the size and cost of its current one. Consistent cash-flow over the past four years has enabled us to take this risk.

Always factor in external influences such as government regulations, technological advancements and the movements of competitors when making projections for your company.

Know your market

Thorough research into current and future market conditions is vital. Know how your market works, who are its major players and technologies and where your business sits within it.

After starting Binvested, my business partner, Nathan Birch, and I started ‘Blink’ property management.

With only one week’s research, we signed the lease for an office in North Sydney - a relationship based market dominated by three agents in which we had no reputation.

The overheads were much higher than in our western suburbs-based offices and our staff grew tired of the increased commute times.

We could not achieve traction and exited six months before the lease expired.

Lesson learned: do a proper cost analysis and know the market.

Know where you are heading

As your business grows, it is important to know when to introduce the systems and procedures of a bigger business, such as induction manuals, staff training, insurances, monthly budgets and management reports.

A common mistake is to continue running like a start-up business and trying to patch emerging problems with more staff. Excessive HR costs can be avoided by planning ahead.

Know your numbers and research the cost

Thoroughly research the cost of your proposed expansion and its impact on profit margins. Factor in overheads such as rent, staffing, payroll tax costs and time management.

Have a buffer in case of unforeseen costs. As your core business expands to include more staff, a growing focus on HR will also emerge. Forecasting tools can predict the financial impact of hiring new staff and how much you will need to raise profit margins to cover these costs.

Factor in a ‘growing into period’

There may be a period of time when your business is nonoperational due to a change of location, as well as a period of teething issues related to the expansion. Make sure you have a big enough buffer to cover any loss in productivity.

Start small

Don’t expand too much too soon. A friend of mine started an energy drink company. He had a license with Marvel and got a contract with Woolworths.

After leasing a large office in Sydney’s CBD he lost his contract with Woolworths because sales weren’t keeping up. An office with cheaper rent would have ensured a greater buffer.

Don’t over-capitalise

Be conservative when fitting out an office. You may outgrow the space and have to move, leaving your money invested in the cabinets you installed.

Daniel Young is a property investor and one of the founding members of Binvested.com.au.

promoted stories