In keeping with the saying ‘if one is not growing, they are dying,’ many entrepreneurs find ways to expand their businesses. A successful expansion can lead to a higher business value, when planned correctly. When not strategically designed, it can lead to a reduced value.
Recently a broker colleague wrote an article about such strategy. He described how one business owner expanded to multiple offices, rather than expand the home office, risking the value of the business.
Counterpoint: The decision an entrepreneur has is far more complex. Four major considerations that should be considered are:
1) When is the sale of the business anticipated and is there enough time to ramp up the expansion, wherever it is, to ensure additional business value?
2) What market conditions exist that might draw one to multiple site expansion rather than expansion of the home office? Perhaps preemptive moves at a distance are more critical than merely saving investment funds in the short term.
3) What investment funds are needed in both cases and how can one maximize return?
4) When the business expansion is done, having a year or more to build revenue and demonstrate cash flow to owner will give the business seller the best return.
Obviously every opportunity and business has its unique nuances – consider them carefully.
