Plan your business like a vacation

Stress-free vacations require planning, research and a budget. Business growth and expansion requires the same attention.

When my wife and I think about a vacation, we consider destinations, the experience we would like, how long we want to go, and how much we are prepared to spend.

From there we research options, seek advice, budget the costs and then start the implementation of the experience. However, we also consider a staycation. If we stay in town, could we have an equally enjoyable experience at a reduced cost?

Over many years, I have observed business owners decide to take an “expansion trip.” Some end up as a disaster, with no “trip” insurance that will reimburse the costs of the unexpected. As a business owner, you may be considering acquiring another business, expanding your product line, or investing in a new plant or equipment. Disaster could be waiting, or great opportunities missed, without planning and analysis. Why invest large amounts of your capital or take on debt and risk when there may be viable alternatives?

Growth does not always lead to increased profitability. I’m not talking about percentages, I’m referring to real dollars.

Your business experience has probably provided you with a great understanding about your products, competition and customers. Put this knowledge to work. Consider how your products are sold. Are there more and different distribution channels to exploit? Who is your competition? What are they doing right or wrong that you could emulate or take advantage of? And, most important of all, who are your customers? Do they know about all the solutions you could provide to them? How are they being served? Is your pricing appropriate?

I recently met with a business owner who was looking to expand by acquiring a competitor.  He was prepared to budget up to two million dollars for the acquisition. His reason for doing this was to increase his profitability. 

His current business has several sales people that call on prospective customers. He wasn’t sure, but guessed that his sales team has a 50 per cent success rate in acquiring new customers, and these successes are achieved by offering great service, but also offering discounted prices. And, the sales people spend little if any time calling on existing customers and ensuring that they are completely serviced and satisfied. 

I also learned that little money was allocated to sales training, and that the closing ratio for some of his competitors was 80 per cent.

Perhaps you have beat me to the obvious conclusions. This business owner has not performed a SWOT analysis on his business that would provide an understanding of its strengths, weaknesses, opportunities and threats. Perhaps the exercise would change his action plan. Certainly, if he was seeking funding to carry out his expansion, investors or lenders would want an analysis together with alternative business strategies. 

A bad business “trip” can be expensive. Understand and consider what is in your own backyard first.

Keep the conversation going

When you consider a business growth and expansion, what do you do first?  Post a comment below.

Disclaimer

The views and opinions expressed in this article are those of the author and do not necessarily reflect that of CPA Canada.

About the Author

Stan Swartz, CPA, CMA, CFP, CMC

Stan is president of Infomoney Solutions. Previously, Stan was in public practice, industry and government. Stan now works with business owners and individuals to increase their financial literacy and become enlightened in financial management. Stan’s motto is “knowledge + solutions = more.” You can reach Stan through email at stan@infomoney.ca, LinkedIn or Infomoney.ca on Facebook.