In order to expand a business by opening new branches one needs to know when to apply the right strategy. Strategy management as defined by Wheelen et al. (2014) “Strategic management is a set of managerial decisions and actions that help determine the long-term performance of an organization“. To Open new branches a business can do it in many different ways, through acquisitions, mergers, product line expansions, franchising, but in this article we take a look at expansion by opening new branches. It is always tempting to think your business is ready to open a new business branch somewhere. There are a few things you need to consider before you can open any business branch in any industry. The demise of most business is in failing to know when it is time to implement the right strategy.
1. Business demand
In order to open any business or branch you need to ensure that the market demand for your product is high or will grow to a level that will support the business. You must be able to ask yourself the following market questions
1. Is there a market for your business?
2. Is the market big enough to sustain the business?
3. Can the market afford your business?
A good research can go a long way to getting you ready for operating a business in the right place. Knowing your market is critical for any business.
A simple case study in Zimbabwe is of banks in Zimbabwe who had a habit of growing branches out of pressure to have presence. Opening a business branch may make one appear to be competing or succeeding but at the end of the day, the income statement and ultimately the cash flow statement will tell us the truth.
Also read Needs, Wants and Demands 101
2. Transferable Processes and Culture
Nothing is as bad as opening a business branch and the business does not operate the same way that its original does. MacDonald and other business are good at transferring process and hence keep in charge of how things are done. If you do not have a defined systems approach or uniform process that the new branch can open with then do not bother. When companies merge with other companies one of their biggest problems is aligning systems, when you open a business you need to look forward to ensuring that the new branch is operates as expected. Transferable processes and culture means the following
- The business can rely on the information systems being provided by the branch
- The company can expect the same level of efficiency in doing business
- The business employees will not have to guess what they need to do or achieve
- Customers will recognize the business and its uniform functions
Also read 7 things you need to do to build a business empire
3. Capital Support for the Long Run
Opening a new branch is never easy the first few months if not years for the real big companies. In the early months there will be a period of loss making. The business which is opening the new branch must be able to support the period of losses. Operating costs will not stop because its a new business, there will always be rentals, salaries, water bills, electricity, fuel and other costs which are important for business to run. This means that whilst the business is running and still trying to find its feet then the business must be funded by someone.
In order to open a new branch there must be an expansion capital set aside that will enable the support of the business through the tough times. No new business just starts by making money, there is a lot of effort that is required.
Also read Watching for the Capital Trap in Business
4. Plans
If a plan has never been made which includes the following then that business has no right to expand into new branches
- Marketing Plan
- Risk Analysis
- Costs Budgeting Plan
- Revenue Plan
- Operational Plan
- Employee Plan
These are just a few pointers in ensuring that the business management is well prepared for the expansion. As much as it can be a gut feeling to open new branches there must also be a science to how the branch will function and the expectations that will be in place. Plans are necessary not because they serve as a yardstick on what needs to be implemented but also that they can be used as a performance measure for the business.
Expanding your business is a good strategy but it must be done in good time with the right preparations. Strategy is more than just opening a business. Most companies lose money because they try to open too many branches before their time. While it may seem like a good idea to open different places, it may become a financial strategic disaster.
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