A growing business should be a blessing. But when you consider what it costs to expand the business to new employees and new marketing campaigns—and all of the budgetary concern that entails—the concept of growing can be surprisingly stressful.
Since 1995, small businesses are responsible for the majority of new jobs created—to the tune of 65%. But that doesn’t always mean that adding new jobs is the best idea. A business that grows too quickly can find itself overstrained and struggling to make payroll. On the other hand, a business that grows too slowly and fails to respond to market changes may never realize its true potential. How can you get the timing right? Here are signs it may be time to expand your small business:

A Strong Customer Base—or More Business Than Your Company Can Handle

Stability comes from the demand for your business. If you already have a strong and steady customer base and notice that demand for your business is only growing, it’s usually a green light for growth.

But simply adding more employees is not the only way to grow a business. As Forbes notes, there are multiple avenues you can explore for growth: additional office space, a second location, additional business systems, improvements in infrastructure or reinvesting in marketing.

Usually, you can tell when you need to expand because one aspect of your business needs to grow in order to meet the rising demand. For example, if you notice that your restaurant has lines out the door, it may be time to add a second location. If your company needs more people to handle its increasing clients, additional office space and new hires might be the way to go.

Having an Infrastructure in Place

Your business is only ready to grow when it has the infrastructure in place to allow for growth.

For example, if you’ve never hired an accountant, increasing the number of workers in your business is going to increase its complexity immeasurably. But if you have an accountant who does notice that your business is on the cusp of growth, you know that you can hand off any increased complexity with payroll to the accounting firm you’ve already hired.

While most people think of business expansion as working upward, it’s important to remember that complexity can push a business outward as well. Hiring a new employee means you’ll have to think about paying out benefits, about having an HR department and about workers’ compensation insurance, in some cases. That means you’re not only expanding the number of your employees but also the overall complexity of your business.

Complexity alone shouldn’t be a reason to shut down the idea of expanding your business, however. You can always hire people to handle much of the complexity—especially those HR professionals who are experienced with labor regulations and building a payroll.

Economic Prospects: Yay or Nay?

Many business owners consider expanding or contracting their business based on macroeconomic trends; is the market set to move up or down?

As a small business, you can likely ignore most of these trends. You should certainly pay attention to economic headlines and watch for recession. However, your individual business may actually prosper during a recession and slow down at other periods, and vice versa.
Large corporations might move their business plans based on macroeconomic trends, but for a small business considering expanding its offices, you might not want to place too much thought into what the Wall Street Journal says about the national economy, instead of focusing on the economics of your business and your customer base.

You should, however, make full use of small business grants to help fund your business expansion. These grants are a great way to get debt- and equity-free financing for your business. There is a wide array of available small business grants currently in the market, most of which being competitive or targeted toward specific types of businesses, that can help you jumpstart the process of expansion without having to pay completely out of pocket.

How to Tell When You Shouldn’t Expand Your Small Business

While the signs written above are solid indicators that it’s time to expand, you should be wary of false alarms. For example, a business that capitalizes on a trendy demand can sometimes see a strong customer base and plenty of demand—only for the “trendy” aspect of the demand to fall off. Sujan Patel noted as much in the cupcake trend, when popular bake shops expanded quickly, only to find that the business potential wasn’t quite as strong as the upward arrows might have initially indicated.

Before you expand, make sure that your business’ growth isn’t due to “trendiness” but, rather, a stable business model and a solid core of customers who will continue to support your business. It’s your money on the line, and you have to place a form of a legal bet: Is your company going to need more office space, more labor and more productive capacity in the future? If the answer is almost definitely “yes,” it’s time to expand.

About the Author(s)

 Ting  Pen

Ting Pen is a ValuePenguin Co-Founder. She previously evaluated corporate mergers and acquisitions as a Financial Analyst at Citigroup. Her experience in financial services combined with her entrepreneurial spirit allowed for her to start her own fin-tech company. Her passions lie in problem solving, growth, and travel.

How to Know When to Expand Your Small Business