Businesses start when their founders see a need for a product or service that they can provide. Businesses expand for the same reasons. You may grow to tap new markets or increase sales in your current markets.
A good business plan is critical to starting a successful business. Creating a plan for business expansions is no less essential. And using your business plan template to develop an expansion plan increases your odds of success and allows you to avoid bad investments.
While it’s called a business plan, it can be written and utilized to successfully enter a new market, launch a product, or weigh the potential of adding an employee.
Throughout my 25-year career, I’ve written business plans or have been a part of teams developing plans for business expansions. Here are some best practices you can implement, that I have learned first-hand.
How to use your business plan as a checklist
A business plan’s table of contents serves as a checklist of all the aspects to consider when expanding your business. It starts with a high-level strategy and continues all the way to market analysis, sales plans, operations planning, and financial modeling.
You don’t create a new mission or vision statement when planning for new investments. Instead, your plan shows how the new investment supports your existing values, mission, and vision. Quickly scratch out a business plan, even employing a lean planning model, for your expansion like it’s a new business.
You then clearly outline the strategy for your expansion and develop the steps for executing that strategy. The following standard business plan sections are essential to your expansion plans.
- Executive summary: This short summary quickly informs your employees, lenders, and investors about the nature and benefits of the expansion. It enhances communication and forces you to clarify the key aspects of the expansion.
- Operations, marketing, and personnel plans: You’ll outline the details of what operational costs, marketing budget, and additional positions you’ll need for your expansion to be a success. This will also be the roadmap for your existing employees to execute that plan.
- Financial projections: You’ll need to forecast how the expansion will improve future profitability. Initial versions may show you need to make changes to your plans to reach an acceptable return. Your projections will estimate the amount of capital you’ll need for the expansion.
Pausing to ensure profitability
Business owners and managers make optimistic assumptions about a project’s success when they are emotionally committed to an idea. They readily accept anecdotal evidence of success. The decision-making error of confirmation bias causes them to accept facts that support their beliefs while ignoring facts to the contrary.
Put simply, they get sloppy in their rush to “seize the opportunity.” As the saying goes, haste makes waste. The rush to claim perceived profits wastes cash.
Expanding to new regions and rolling out new product lines are complicated endeavors. Thinking through a business plan for these initiatives provides critical analysis of the feasibility of the plan. The plan then serves as the implementation roadmap for executing your expansion.
Methods for testing if your expansion makes financial sense
There are two ways to prevent you from executing on a plan that hasn’t been thoroughly thought through.
The first is preparing a thorough plan to submit or pitch in order to get cash for the expansion. Lenders and equity investors are less emotionally involved in the plan as people within the company. They’ll easily tell you if they think it’s a well thought out endeavor by way of choosing to or not to fund you.
The second way is to appoint a “devil’s advocate” for the expansion plan. This is crucial when there is little discussion and little disagreement about a plan. As Patton said, “If everyone is thinking alike, then someone isn’t thinking.” Appoint at least one person to identify weaknesses or unanswered questions.
A business plan for a new employee in a new market
Analyzing a new region or a new employee is very similar to starting a new business. You use the same business plan components you used when starting your business when planning for and making these other major business decisions.
For example, I was the Program Manager for a group of investment advisors at a financial institution that had banking branches in a rapidly growing region. One of my advisors in another region was simultaneously servicing their own region along with this one. I needed to determine whether we could profitably hire an additional advisor to properly manage this emerging marker to allow the current advisor more time to manage their own.
By walking through a business plan outline, it helped me research the market, identify the characteristics of a target candidate, and calculate the financial feasibility of placing an advisor in the market. To be honest, the plan showed we had limited opportunities.
However, the plan identified the few options that would be successful in this market. Doing so helped us avoid mistakes that could have cost us substantial time and money.
Planning for new regions
The first investor you always need to convince with a business plan is yourself. This is even more true for plans for new locations and regions. You’re deciding whether to invest your company’s money and time into these new locations. Once again, the components of a startup business plan are useful for these expansions.
In this case, your planning and analyzing the allocation of resources and capital. Resources committed to the new location aren’t available for other opportunities. So if your company says “yes” to this expansion plan, it must say no to another.
Business plans for new companies answer the question, “Should I start this company?” Plans for new locations answer the question, “Is this the best investment of my company’s resources?” You’re comparing the return on the new location to the return of your other options.
Mission, vision, and values
I was the CFO of a community health clinic system, and we were quickly growing with scarce resources. Our mission, as defined by the community partners that formed us, was to provide medical, dental, and mental health services.
We ran a transitional housing program that was weakly linked to our mission. The transitional housing, while an admirable initiative, was funneling resources away from our primary mission, so we decided to exit the program.
If we had done a business plan before we began transitional housing, we could have identified how it didn’t support our mission. A thorough plan could have shown us the time and financial commitment needed to run the program, as well as how to invest our scarce resources better.
Avoiding losses through planning
Not all plans are executed. That’s success, not failure.
The weaknesses of a plan usually surfaces during financial analysis or operations planning. That’s where I’ve repeatedly found problems that weren’t necessarily obvious at first.
This typically occurred with new products. Financial analysis often showed how the new product or pricing caused profits of other products or existing products to drop. Operations planning would sometimes project production costs well above initial estimates. If interested, I explain this exact scenario in more detail in an article I did on pricing analysis.
Saying no to a project after careful planning is a success, not a failure. You now know what not to do, which is valuable all the same. Avoiding mistakes prevents wasting time and money.
Integrating the project plan into your full business plan
After you’ve gone through the process of developing and scrutinizing every inch of your plan and found it to be viable, it’s time to execute. And that means integrating it into your master business plan.
You’ll need to identify how the expansion plan will pull away resources from other parts of your business plan. Additionally, you’ll need to address the addition on your budget sheet and forecasts, as well as determine which projects have priority for these resources.
Expansions often decrease profits before increasing them and require large initial investments. The investment expenses precede the revenues they will ultimately produce and may lead to cash or profitability constraints. Phase in your plan slowly to dampen the impact on your cash flow and maintain profitability.
Remember your stakeholders’ interests
I worked at a financial institution that developed a plan for remodeling all existing branches and building new branches. We were committed to the concept but repeatedly pushed back parts of the plan to maintain a return on assets that was acceptable to our board of directors.
Marketing messages and the interests of your current audience will also need to be prioritized. Will marketing for the expansion dilute marketing of your brand or other products? Do you need to further segment out your established target market?
It can be very easy to promote too much or send the wrong message when launching an expansion. Determine how you’ll approach your marketing efforts to ensure that you don’t overwhelm or deter your customers.
From concept to execution
Planning doesn’t occur in a straight line from idea to execution. It’s much messier than that and requires difficult conversations and compromises. Not all ideas are good, but a planning process that identifies bad investments can lead to success, even if you decide not to expand.
Revisit and update your plan before deciding to marry expansions with existing operations. You can easily use the business planning process to evaluate opportunities and identify your best path forward. All that work will then pay off as you quickly execute a comprehensive and well-coordinated expansion plan.