Expansion. It’s a word that’s a double-edged sword for many shop owners. On one hand, expansion is a sign of growth. That’s a good thing. Expansion can allow you take on more business, offer new products, and generally scale your business.
On the other hand, expansion takes capital. It can be expensive, especially if the expansion doesn’t pay off as you had hoped. For many shop owners, there are so many uncertainties surrounding potential expansion that they’re reluctant to pull the trigger.
What if the economy turns down right after I expand? What if the new product offering isn’t as popular as I expect it to be? What if I can’t find enough skilled workers to fill all the new positions?
Every shop owner – actually every business owner – asks these questions before undertaking an expansion. In fact, you’d be foolish to expand without questioning some of these issues. However, you shouldn’t let these questions keep you from going forward with an expansion that your shop desperately needs.
If you’re unsure about whether you’re ready for expansion, consider some of the issues below. If they sound familiar to you, then expansion may be the best course of action for your shop.
You have more business than you can handle.
Do you have orders coming in faster than you can process them? Are your shop guys working around the clock? Are you having trouble meeting customer deadlines?
This is a good problem to have, but a problem nonetheless. Working around the clock to meet an endless stream of orders isn’t sustainable. One of several things is going to happen. First, you could start missing deadlines, which will undoubtedly frustrate your customers and lead them to look for another vendor.
Another possible outcome is that your floor workers will start cutting corners, leading to quality issues. Again, this could drive your customers to another shop. There’s also the possibility that you and your team could buckle under the pressure and burn out. You may have workers start calling in for shifts or even looking for jobs elsewhere.
If you’re dealing with more business than you have capacity for and you expect that to go on for a long period of time, then you’ll have to consider expansion as a real option. Yes, the capital investment may be scary. However, in the end it will allow you to meet your customers’ demand and grow your bottom line.
You’ve cornered the market on a specific niche.
Focusing on a specific industry or type of part is a great way for a small shop to grow quickly. The big shops are busy trying to be all things to all customers. If you can focus on doing one thing really, really well, then you could quickly grab market share in that area.
The problem with being a niche shop, though, is that you may have a natural limit on how much you can grow. Once you’ve dominated the market in your niche, there may not be much growth opportunity left. If you’re in that situation, expansion could be the path for you.
You could add equipment that allows you produce complementary parts or products to your core offering. You could then diversify your product mix with your current customers, allowing you to serve them in a variety of ways. Focusing on a niche may make you profitable, but you need expansion to get you to the next level.
Increased size would reduce costs.
Without question, one of the best reasons to expand is to take advantage of economies of scale. It may seem counterintuitive that growing would reduce your costs. After all, expansion usually means a bigger building and new equipment. Those things cost money.
The thing is, though, that those things are usually one-time costs. As you grow your business and produce more product, you’ll probably find that there are many costs that shrink relative to your overall revenue.
For example, bigger and faster equipment may allow you to produce 50 percent more product with the same labor costs. You may find that your shop can output more product but that your office costs stay relatively level. Those are economies of scale. You’re producing more product at a faster rate, so your costs per product for certain items go down.
You have the capital to fund an expansion.
This is the issue that holds most shops back. Expansion requires capital. You probably know how hard bank lending can be to obtain in the current environment. Without a sizable down payment, you’re unlikely to get the financing you need.
However, maybe you have the down payment. Maybe you have good enough relationships with equipment vendors to get favorable financing from them. Maybe you can self-finance part of the expansion. If you’re able to accomplish any of these and the expansion will help your business keep moving forward, then there’s no real reason to hold back.
You can increase the likelihood of success in your expansion by having complete transparency into your manufacturing process. Understanding your costs, your revenue, and your time and labor requirements can help you decide which types of expansion will best serve your business.
A robust ERP solution can give you all of that information and more. At Shoptech, we help shops just like yours get a clearer view of their shop’s operations. Contact us for more information on how our E2 system can help you prepare for your expansion.