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With numerous benefits, expansion is likely at the forefront of your mind as an SME company owner. But to fuel your expansion plans, you need a healthy flowing cash flow. It is because cash is required to pay for your expansion efforts, like hiring additional staff, buying new inventory, running marketing campaigns, investing in new technology, and more.
Keep reading to discover more about the basics of business expansion, its significance and the crucial role of a cash flow forecasting tool Moolamore that will help you make an intelligent, informed decision, anticipate shortages or surpluses and make your business expansion a blazing triumph! Let’s start.
Measure of Business Expansion
To gauge whether your SME company is expanding or not, you can utilise the following benchmarks:
- Assets – If your business has more resources (assets) through internal or external growth.
- Number of employees – If you require more staff or employees to operate various jobs in your business.
- Number of customers – If your business sells higher output to more customers—both in the foreign and domestic markets.
- Total output – If your business produces more products as it maximises production capacity.
- Revenue – Your company will generate more revenue if you can sell more products
- Profits – When your business income increases, it should be supported by increased profits through economies of scale and several cost savings.
- Market capitalisation – Note that stock market investors love growth and profitability, so expect stock prices to go up.
Business Expansion Categories
As a whole, you can classify business expansion strategy into two categories. The basis is how you execute your growth, whether by establishing internal resources or by blending external resources.
Let’s see more of the definition below:
A) Internal Growth
Also known as organic growth, this category of business expansion strategy relies on internal or existing resources and capabilities, which may be through:
- Purchasing new machines or constructing new factories to increase production capacity
- Attain a more extensive range of customers by opening branch offices or new outlets
- Maximise advertising spending to elevate sales by persuading customers to purchase
- Provide new variants of existing products to existing markets
- Selling products internationally to expand into new markets
- Expanding market segments, for instance, by stretching out other segments associated with the current segment.
B) External Growth
On the other hand, this business expansion strategy which you may also call inorganic growth, entails external parties to grow by combining the resources and capabilities of other companies. It can be run by means of:
- Acquisition – refers to the takeover and control of another company. Hence, the acquiring company is more influential in size, operations and structure than the target company. Types of acquisition include friendly, hostile and buyout.
- Merger – pertains to consolidating two or more companies to form an all-new entity with a new name. This assists the companies in uniting their resources, strengths and weaknesses. Types of merger include vertical, horizontal, reverse, congeneric and conglomerate.
- Strategic Alliance – this implies an agreement between two or more companies to share resources to implement a particular project. Each of them stays independent of the other.
- Joint ventures – are when two companies agree to form a new business. This method enables companies to integrate resources, technology, expertise and complementary capacities.
Significance of Business Expansion
Here are several reasons why expansion is good for your business:
- Bring In New Customers – Although you already have a well-mined customer base, one of the best reasons for business expansion is the opportunity to reach out or connect to a new group of consumers, mainly if that business expansion entails introducing new products and services.
- Economies of Scale – When your business expands, vendors and suppliers are much more motivated to offer you discounts since you’re ordering in larger quantities. Thus, you’ll be paying less to get more of the supplies and products you need from your suppliers, which also means more of your funds can go into your improvements to have an even more lucrative business.
- Diversify Your Revenue Stream– Expansion gives your business a great chance to render various offerings, which means you are not exclusively reliant on selling one core product or service. And with that, you can diversify your revenue stream.
- Establish Brand Identity – The more locations you have, the more people can recognise your brand. Expanding strengthens your business’s brand identity. It can help you rise from the competition and influence potential consumers’ purchasing decisions.
- Maximises Your Investment Appeal – If you aim to attract venture capitalists or leverage any other type of equity financing, opening a second location can make a difference. As long as you can support your second operation, it can make an impression on prospective financiers.
Where Moolamore Sets In: The Crucial Role of Cash Flow Forecasting For Your Business Expansion
Remember that forecasting your cash flow using the Moolamore app is a powerful way for your business to take control of your expansion plans. Because it will give you clarity over how much cash is expected to be accessible in a month, six months, or a year. Hence, it will be easier for business owners like you to plan and map out your expansion strategy.
To further elucidate, consider the following benefits of cash flow forecasting to make your business expansion a success:
Budget More Effectively By Monitoring Your Revenue and Expenditures
Cash flow forecasting using Moolamore helps you quickly identify and analyse if your current revenue and expense budgets are accurate or way off the mark. Doing so will give you the necessary time to adjust to guarantee you remain on course.
Track Late Payments
Using a cash flow forecasting app, Moolamore, also lets you determine which customers negatively affect your bottom line because they don’t pay their invoices on time. And with that, you can enhance your receivable management by implementing a better payment policy and procedure that will be an advantage for both ends.
Allocate Cash Surplus
By predicting your future cash inflows and outflows with a cash flow tool Moolamore, you can identify periods of excess cash and plan how best to use it.
Without accurate forecasting, it’s all too easy to overspend, leaving yourself short of cash when you need it most. So if you’re serious about expanding your business to increase your competitive advantage, cash flow forecasting should be one of your top priorities.
Anticipate and Plan For Cash Gaps
In uncertain times, your business’s ability to navigate through fluctuation and disruption can be the catalyst for long-term financial health. That’s why you need a cash flow forecasting tool, Moolamore, to pinpoint cash gaps well in advance, giving you sufficient time to cover any dips in your cash flow (e.g. change credit terms with your clients, tighten up your payment terms, negotiate with your supplier or secure financing).
Scenario Planning For the What-ifs
One critical component of cash flow forecasting with Moolamore is scenario planning for the what-ifs. This means considering a range of possible outcomes, both positive and negative, and creating strategies to deal with them should they occur.
Can you afford to hire additional staff? Can you survive and manage a sales downturn? When do you have enough “free cash flow” to expand and open up a new store location?
With cash flow forecasting, rest assured that your business is ready for any situation that may arise and can take steps to mitigate risks while maximising opportunities.
In Hindsight
No doubt—having a clear picture of your cash flow position at all times is vital to the success of your business expansion. So see to it that you master cash flow forecasting using the Moolamore app. Thanks for reading! Hope this blog helps!
Confidently pursue expansion opportunities without risking the financial stability of your business. Utilise a reliable and expert tool Moolamore now. Request a demo today!
