After creating your business plan, raising capital and opening your doors, your next task is to make a profit. But once the money is coming in and your operation is sustaining itself, you want to start thinking about growth. How do you achieve growth? The answer is to plan for it.

Strategy #1: Building for Growth

“Before a business can grow, it needs to have a solid foundation,” explains Joseph Westcott, First Vice President, Commercial Lending Officer at PeoplesBank. “Owners must ensure operational efficiency and their ability to compete in the market before they invest in growth.” Here are two things to work on if you’re thinking about organic growth:

Making IT Count

As sales orders grow and product range increases, properly implemented IT systems can enable more efficient management of sales pipelines and production planning. Owners should assess whether it’s beneficial to bring someone on staff to handle IT, or outsource to a company that specializes in this area and essentially acts as your organization’s IT department.

Minding Your Margins

“Many times, margins still fall due to higher costs from the increased demand for materials and labor,” notes Mr. Westcott. “It’s not always easy to know where to make changes first, so if you’re embarking on your first cost-containment exercise, it’s a good idea to work with a professional, such as a trusted accountant.”

Strategy #2: Buying Growth

Whether it’s to increase market share, gain economies of scale by acquiring a supplier or entering a new market segment, acquisition can quickly change the growth potential for your business.

Building the Right Team

Acquiring a business is a complex and potentially difficult process that requires many professional skills, from business identification to value assessment and negotiation. Sometimes it can help to assemble a team of advisors to aid in the process. It will make for a cleaner transition and allow the business owner to also remain focused on their own business.

Doing Your Due Diligence

“Any business considering an acquisition must conduct due diligence on their prospective targets to assess the risks and opportunities of a proposed transaction,” said Mr. Westcott. Proper due diligence will spot conflicts of interest, evaluate the merits of the deal, identify potential negotiation issues and help you make the final decision.

Strategy #3: Growing Through Diversification

Tight competition in your market may mean it is time to think about new geographic markets, product areas or industry sectors. “More businesses are looking to diversification as a core business strategy,” said Mr. Westcott. “Planning and preparation are essential in addressing knowledge gaps and mitigating the risks that entry into new markets or product areas can present.”

Selecting the Right Market

Companies thinking about expansion need to answer serious questions to ensure the move and, specifically, the location, match the goals of the organization. Two very important questions to ask are: “Where can I find reliable data to compare alternative sites?” and “How can I establish any new operations in the quickest and most cost-
effective way?” Once you have those, you can objectively analyze and score the financial and non-financial elements against the specific factors to make the best decision.

Assessing the Risks

“In terms of risk assessment, think short and long-term,” said Mr. Westcott.“ Many business owners seeking long-term growth often overlook how much goes into the initial investment. A company may have the appropriate amount of cash available to fund the initial investment. If a certain level of borrowing is needed, this is also a possibility; however, the owner should maintain a disciplined approach toward borrowing during a growth period to avoid a strain on cash flow. No matter how good the long-term opportunity may appear, if it puts a serious bind on your current business, it’s probably not the right move.”

Building a solid foundation, buying a competitor or supplier, and diversifying markets or products are all excellent strategies for taking a business to the next level. To pay dividends, however, they need as much or more planning than when you started your business. When you make the right decision, you don’t just put yourself in a position to make more profit, you position yourself to truly make the leap into something bigger.

PeoplesBank works with local businesses, big and small. And as the largest community bank in the market, we believe local businesses fuel growth in our surrounding cities and towns. For more information on how PeoplesBank can help your business, contact one of our Business Bankers or Cash Management Officers.