Should Small Business Owners Be Cautious About Expansion?

No small business owner starts a company with the intention of keeping it as small as possible; expansion plans figure into most entrepreneurs’ approaches right from the very beginning. However, at the same time, it also might be possible for companies to get a little too far ahead of themselves in this regard.

It is, in fact, very likely that small businesses which try to undergo some sort of expansion before properly preparing for such an effort could end up failing in some way, according to a report from USA Today. While no business started big, many that have tried to get there too quickly have faltered big-time because their owners get so excited about the prospect that they ignore a number of potential warning signs.

A recent survey from American Express found that about one in three small business owners or managers list their companies’ ability to expand is the top priority for them, the report said. That includes selling more products or introducing new ones, moving into new markets or partnering with other companies in their fields.

However, one of the biggest things that these kinds of rapid expansion efforts can do is end up leaving companies with not enough money coming in, the report said. That, in turn, can serve to put small business owners and employees in a very difficult position.

“Going too fast can kill you from a cash-flow standpoint,” Thom Ruhe, vice president for entrepreneurship at the Ewing Marion Kauffman Foundation, told the newspaper. [Small business owners shouldn’t put themselves in a position to say,] as soon as receivables get caught up, we’ll get you a paycheck.”

Another type of expansion move that can prove potentially disastrous is an effort to roll out a new product before it’s ready, the report said. Many may get so excited about these new offerings that they begin selling them before they’re fully ready. As a result, these products may not have everything worked out properly, and thus could be a turnoff to consumers who might have otherwise been very interested in them.

Owners that want to insulate themselves from added risk with respect to costly expansion efforts may be able to reduce costs in other ways, such as by finding more affordable small business insurance. Cutting premiums for liability insurance and other types of coverage may go a long way toward shoring up a company’s bottom line.