Advantages and disadvantages of growing your business
Consider all the advantages and disadvantages of business expansion before investing in growth.
For many businesses, growth signals success. It creates new opportunities, brings in more customers and generates greater profits. However, expanding your business isn't without risks. You should carefully consider the pros and cons of expansion before pursuing business growth.
Advantages of growth
Possibly the greatest competitive advantage of business growth is the ability to capitalise on economies of scale. As you increase your production output, you can bring down costs per unit and achieve savings across:
- purchasing - by getting discounts for buying in bulk
- marketing - by spreading the cost of promotion over larger sales
- overheads - by spreading the staff or administrative costs across a greater output
Business growth can also enable you to:
- increase your resources and stock
- generate more sales and profits
- reach new customers or markets
- put more money back into your business
- influence market price
- reduce external risks (eg from competition, market or technology changes)
Expansion can also give an impression of greater financial viability of the business. Financial institutions often see larger businesses as more credible and stable than their smaller competitors.
Diversifying into new markets, products and services means that if one part of your business is exposed to market changes, you can rely on other income streams.
Disadvantages of business growth
Larger businesses tend to be more complex than smaller businesses. Some of the common disadvantages of business expansions are:
- shortage of cash - you may need to borrow money to meet expansion costs, eg buy new premises or equipment
- compromised quality - increasing your production output may lead to a decline in quality, which can lead to loss of customers or sales
- loss of control - as your business grows, you may need to delegate management duties or divide the workloads between different locations
- increased capital requirements - a larger business means a larger workforce, more facilities or equipment, and more investment
- increased staff turnover - for example, if staff are given extra work, their morale could drop, their productivity could decrease or they could leave your business
It's important to understand that growth can be a disruptive force. It can affect every single aspect of your business and put pressure on your staff, resources and finances. This is why you need to plan carefully and ask yourself the key question - is my business ready to grow.
If you're ready, follow some tried and tested tips to help you prepare your business for growth.