Between global economic uncertainty that leads to market volatility to policy and regulatory changes, it can be a challenge to know when it’s the right time to expand your small business. Recently, between March 2023 to March 2024, small businesses opened 1.3 million establishments; however, in that same time, 1.1 million small businesses closed. Though during this time, there was a net gain of 1.2 million workers, which does indicate growth.

As the small business sector grows, your gut may be telling you it's time to expand your small business by opening a new location, adding an online store, or reaching a new group of clients. While growing or expanding your business is never without risk, there are distinct indicators you need to consider that may indicate if the timing is right. Let’s review four of those key signs.

Sign #1: Sustained demand

Sustained demand is a strong indicator that it's time to expand your business. Adding staff or opening new sales distribution channels is a step you can take toward meeting demand. However, it’s important not to be fooled by an unusually strong month of sales. You will want to track revenue over several years and look for double-digit revenue growth before taking next steps.

Sign #2: Reliable management team

Consider whether you have the right people in place to expand. For example, if you are considering launching a second location of your restaurant, it will likely require your full attention and being physically present at the next location to ensure that operations are up and running. In the meantime, you must ask yourself if your management staff is ready to take over your responsibilities at the first location. If the answer is yes, your management team is ready, you will need to consider how you should delegate your responsibilities—which is not always easy. However, if the answer is no, you do not feel that your management team is ready for the additional responsibilities, it’s important to critically consider if it is the right time for expansion. It’s possible that expanding the business may not be worth the level of stress you would experience.

Sign #3: Strong customer retention rates

Track your customer retention rate, keeping in mind that repeat customers are likely to spend 33% more than first-time customers. Customer retention translates into increased profits. Acquiring new customers can cut profits, with costs ranging between 5% and 25% more than for retaining a loyal customer. If you see acquisition costs declining over time, this can signal your marketing strategies are working and it may be time to scale up.

Sign #4: Positive cash flow

Positive cash flow is an important indicator that suggests that expansion is a smart next move for your business. Along with cash flow, savings is another sign of a healthy business. Money in the bank provides the business with a financial safety net for further investment and expansion. If you are applying for additional financing, banks often look more favorably on businesses with positive cash flow and are more likely to grant them a loan.

We’re here to help

Expanding your small business can come with substantial financial and logistical challenges. After growing a successful business, it may be difficult to risk everything you have worked hard for by expanding. However, by carefully monitoring internal and external indicators, you can take the next step with confidence. If you have questions about whether your small business is ready to take the next step, our Business Tax and Advisory team is here to help. Please reach out to get started.

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