A Modern Day Blueprint for Business Growth and Expansion

By Albert Castello

This book, A Modern Day Blueprint for Business Growth and Expansion, is written as a comprehensive planning and development tool for a business contemplating a major growth and expansion effort. It attempts to demonstrate a properly defined approach for any sized company, to ensure a successful effort for growth and expansion. While owners and management of businesses see uniqueness in how they operate and make decisions on key factors such as the need to add equipment, increase sales volume coverage, and go to the bank for funding, more important topics are, sometimes, not considered in enough detail to formulate, develop, and implement a successful plan. Of course, there are other alternatives to initiating a plan and control its implementation, but if goals are not properly defined, certain business functions are not addressed, and research of the unknown is not accomplished, be prepared to address unforeseen results, like showing waste of resources, loss of key employees, over-spending, and possible loss of customers.

In the book, important subjects covering national and international expansions are discussed and differentiated. We dwell on the difference between the terms growth and expansion. The impact of the effect as to how business is accomplished, use of systems and procedures, organizational emotions, and benefit expectations, are presented in a successful, real case study situation. The decision-making is illustrated throughout the business planning process, and is supported by expected results using these concepts. Once a decision to develop a growth and expansion plan is made, the most important task lies ahead, emphasizing the preparation that is required. This covers detailed review, due diligence, revisions to current operations, and expectations that determines issues and extenuating circumstances which require attention. Finally, development and implementation of the plan can be appropriately handled using the timing and financial capabilities to support the effort with little or no disruption to the current business cycles, as well as properly funding the effort.

As a rule, most companies expect to grow, and have different ideas and expectations in developing an approach. Results are measured in different ways, but there are key elements like meeting income and cash flow requirements, properly investing in capital assets, upgrading the organization to meet the challenges of growth and expansion, and enhancing the technological effort to integrate the new and old systems. This blueprint, as described emphasizes:

patience when considering growth and expansion expectations

strategy in the decision-making process

realistic assessment and understanding in preparing to meet the requirements of growth and expansion planning

practical development of the plan around the way the company operates and uses organizational capabilities

timely use of resources and funds during the implementation process

The attempt to recognize the approach as outlined in the book does not feature an academic or theoretical example. The actions taken in this book are real and factual. As stated in the Introduction, there are other real and factual approaches that may, or have been used in other successful growth and expansion projects.

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• Language: English
• Publisher: Newman Springs Publishing, Inc.
• Release date: Feb 1, 2021
• ISBN: 9781648015038

Book preview

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Important Concepts to Recognize

1.1 Consideration for Business Growth and Expansion

Introduction

Most owners of companies start a business with expectations that growth is a natural process since they have something to sell, a method to operate at a reasonable cost, an effective organization, and financial capability. Operating a business, of course, is usually motivated by sales and profits. But starting a business defines important steps that require legal review and organizational work, and as the business matures, newly created subjects, covering sales, operations and finance become focal points for making important decisions. Growth and expansion subjects take on a more meaningful discussion, as the current state of business often dictates more routinely meaningful conversations. As the business grows, wide-ranging planning and control efforts become more instrumental in achieving profit goals. Owners and/or corporate management, at this point, are thinking about why, what, how and where growth and/or expansion can continue to be achieved.

There are many factors that will affect business expansion, and some of these factors would likely be different than factors previously used to grow the business. But first, the question as to whether the company is, at this point in time, ready to grow and expand has to be addressed. Let’s point out a few key areas that likely demonstrate the importance of how ready a company is when considering the subject of growth and/or expansion:

Profits have been consistently generated over a three to five year period.

Enough cash is available to invest without having to borrow funds to sustain the current business model.

The company is a major factor in its market and is confident about increasing its share of the market.

Capitalization is strong, with the confidence of the company banking and financing institutions.

If the business is ready, well-thought out preparation and planning actions become important steps to the continuation of this important mission of the company. Successful planning, whether it is growth of current business, or merger and acquisition, requires an organizationally deliberate and well-controlled effort. The definition of any effort required should cover a reasonable period of time, a realistic review of current operations, and specific estimate of funds to be invested.

The content of this book attempts to emphasize the importance of a growth and expansion strategy, a value assessment of what a business does well and not well, a generally anticipated impact of the plan on the existing business, effects on the organization, and probable culture changes. A text book, it is not, but if used as a guide for expectations, it illustrates knowledgeable points of view, mixed with actual experiences. Some valuable tools and answers to questions are offered for those who are considering a growth strategy or expansion effort.

Differences between the Terms "Growth" and "Expansion"

Growth is an objective for most business, and usually emphasizes the performance of a successful venture in a market it serves. But a business expansion is considerably more involved, emphasizing the subjects of product, resources, geography, organization, finances, and investment. Expansion is growth, but there are more strategic and managerial aspects to planning and executing an expansion program than planning an increase in sales volume or an approach to revised geographical distribution of product and funding new equipment.

Further examples are described below to show some differences between business growth and business expansion:

Growing the market affects the relationship with existing and potential customers. Selling products to customers in an existing market may be much easier than selling products to new customers in newer markets. Newer customers in an expanded market are usually more conscious about quality and price than an existing customer who already is doing business with the company. Changing suppliers is difficult for some customers, and is an example of a probable problem in an expanded market by being more costly than in an existing market.

The risk of geographically making a commitment to grow as compared to a commitment to expand is fairly obvious. There may be some belief that committing resources in a geographical expansion may undervalue the reputation of the business and unfavorably affect the market brand. A mistake in thinking that a good reputation will be immediate in another market after pouring resources and money into an expansion could have serious financial implications in a number of areas in the company.

Growth usually has a favorable impact on cost of operations. There are conscientious efficiency improvements when the business is exposed to increased distribution and supply of products, as well as cost reductions in buying materials due to increased volumes. An expansion may give benefits in these areas, but could add other costs, such as acquisition, administration, and technology. Stocking product, shipping, and warehousing investment may not be readily apparent in comparing the differences in the two concepts.

Keeping up with the competition is a key factor in growing the company. A goal may be to be number one in the industry, and finding ways to accomplish growth of this magnitude is difficult if a business expansion plan is not a growth decision. Further, growing in new markets may be more successful than attempting to grow in your market.

Justification for Growth and Expansion

Let’s discuss some typical reasons for wanting to grow and/or expand a business. It can be about the emotional attachment to the business, the vision of the owner(s), the investment capability required, significant events which can have an impact on normal operations and profits, changes in global economic conditions, and owner(s)’ mission to effectively utilize capital assets.

All owners expect growth in the business at some point in its life. What is the challenge of operating a business if there is little interest in its potential growth? Increasing sales and profits? A few early questions are, At what point in its business cycle and when is the right time? Decisions for business growth and expansion must be supported by the expected benefits. Growth and expansion decisions are based on unique expectations, effective preparation, and development of concise planning efforts. Here are some good reasons to look at the expected next phase of development of business growth

Increase in profits and enhanced cash flow

Protection of markets and distribution outlets

Maintaining a competitive edge

Elimination of some current vulnerabilities

Building of company confidence in the industry

Decrease in costs to operate, both direct and indirect

Enhancing systems and procedures, thus becoming more efficient

Becoming more of a factor in the industry served

1.2 Importance of Planning and Control Functions

The importance of how reliable key operations are, in accurately generating information to make important decisions, and their "fit" to expectations in making growth and expansion decisions, are emphasized.

Most businesses cannot operate effectively without the planning function. Many businesses cannot plan effectively, because control in key areas is weak. This is a major reason why diligent preparation in a growth and expansion project is such a critical element. Vision must accompany history, and learning from mistakes is paramount to corrections in how to operate for growth. Executives usually talk about the importance of business planning, but, understandably, do not often play a major part in its application. It is usually handed off to other management and staff to gather and analyze planning data. It is also a key factor to owners and executives in applying this expertise at this decision-making stage, especially in maintaining realism and objectivity in identification of each program phase in the business cycle.

The planning stage is the seeking and specifying of objectives together, with the mapping and qualifying the best routes for their achievement. Actually, planning and control functions are indivisible, but are necessary for growth and expansion decision making. Decisions are made easier when supported by informed judgment rather than estimates and guesses. Judgment requires gathering relevant information in the correct form and at the right time, separating the important from the unimportant.

Here are some typical ingredients in business planning preparation:

Pinpoint the organization of operations into an integrateddatabase by having all critical areas of revenue-producing operations flowing from supported applications. This data base will establish realistic statistical and financial information for benchmarks to be realized.

Establish keyperformanceindicators (KPI) under an umbrella of significant areas. These indicators would cover what would be considered if acquisition, financing, or investment criteria are prevalent topics.

Financial

Human Resources and Personnel Management

Liabilities and Risk Management

Operations Evaluation

Sales and Marketing

Market and Competition

(See standard examples in KPI Addendum A)

Develop a means to score the Key Performance Issues. This score can be considered a Business Assessment Ratio (BAR). Diagnosis or analysis of any problems found is systematically evaluated before dollars are forecasted for these areas. Recommendations for revising operational behavior at each level of operation should be reviewed. Increasing a value within the company is a fundamental reason for being in business.

Integrate the results within the planning process documentation, including any impact on the operating budget and forecast data

1.3 Goals for a Company Growth and Expansion Program

When developing goals, a business looking at a growth and expansion program should avoid misconceptions. An example of a misconception is reliance on a valuation of the target that is based on previous year earnings or a multiple of sales formula of some type. In the book Running and Growing Your Business by Andrew Sherman, he points out that it is important to look closely at the foundation of the target’s business, such as economic and technological trends, affecting its outlook, the quality of its assets and management team, its dependency on a key supplier or customer, and the extent to which intellectual property has been protected. In addition, other financial data about the target should be examined, beyond its sales figures, including cash flow, accounts receivable, credit ratings, and cost of goods sold.

A second misconception is that diversification significantly reduces the risk of business failure. It is vital that the industry involved in the affected transaction be researched, where any issues affecting the negotiation and transaction structure would be contended. To this end, due diligence becomes another important part of the business expansion plan. This subject is addressed in more detail in the section describing the development of a growth and expansion plan. Appendix B illustrates typical due diligence subjects.

A third myth is the assumption that the best opportunities in acquisitions are found in turn-around companies. Rehabilitation of a financially weak target may drain management and investment resources, even though a lower price is paid. However, in a situation where a financially capable company has a high standard of operations, and the standard is more important than the goal, this transaction may be good for both buyer and seller. Sometimes, matching the target’s weaknesses with the acquirer’s strengths works well. However, the more the target changes, the more risks are introduced.

A review of some standard goals for a business wanting to expand in various areas is described below. Each area may be in interfaced or stand alone as the development of a plan is defined.

Strengthen Market Position

Building a strong foundation for growth is critical to increasing market share for business expansion projects and long-term success. This goal may be conceptually different for companies which are developing growth programs. Sales mix may be a foundation of the marketing program identified to achieve results for success. However, if the foundation includes typical issues which are relative to a successful sales mix when defining marketing goals, solutions need to be found before a decision is made.

Product

Products and services to be offered are accepted after the expansion is implemented.

Features and quality are continued under new circumstances.

Changes to product are accepted by the customer.

Capacity to produce or distribute product is achievable.

Location

Distribution to the market is enhanced and acceptable.

Current and new channels of distribution are advantageous to the growth strategy of the company.

Specific geographical areas are profitable and generate the return on investment necessary for expansion success.

Pricing

Price determination and relative marketing strategy are in line with varying wholesale and retail levels.

Legal issues regarding domestic and/or international pricing considerations are clarified and acceptable to the development of the plan before implementation is considered.

Promotion

Awareness of the products and services to be sold has been accomplished.

Exercising of advertising and public relations programs can be effectively accomplished.

Management and employee resources are allocated in a prudent manner.

Horizontal and Vertical Sales Diversification

Alternative expansion approaches, namely vertical and horizontal strategies, should be researched before a plan is developed to support profitable growth. Both strategies can be viable, when based on proper goals and resources available. A vertical strategy dictates a flow of product from an original source to the end user through the appropriate channel. Each channel is a vertical step.

A horizontal strategy allows for expanding the flow of product through increasing efforts of the original source, as in creating more distribution outlets, expansion of a territorial target market, internal expansion of capacity, more warehousing, etc.

The goal-setting decision should be based on looking at the industry, the competition, customer base, and application of the capital expected to be used for the business expansion. Both vertical and horizontal strategies are a matter of preference, strategy, opportunity, market dynamics, and capital availability.

Control of Demand and Supply Issues

Part of the marketing research that should be accomplished before putting a plan in place is the impact of product demand and supply on the operations. Demand and supply planning is an important step when determining the level of growth to match the investment opportunity. For example, globalization is proving to be a digest of data from many different sources. Information, such as improved visibility and control of new regions, customers, and suppliers, promotional plans for consumers, and forecasts should help in harmonizing and consolidating demand expectations. It becomes important to blend sources of information to overcome the challenges