Company Growth: Business Expansion Risks & Challenges

Posted on by Cavendish Munro

11.16.2014 (1)

As your business grows, the advantages of investing in expansion also begin to grow – whether you’re an SME looking to expand nationwide or a national firm planning to go global. As with any major company changes and business restructures, it opens up a slew of risks and these can simply be amplification of existing ones or new risks created due to expansion.

It’s important to recognise, plan for them and set in place structure for protection, and this is what our latest post covers.

1. HR Issues & Employee Management

One area that a number of SMEs don’t consider when looking at significant growth is the internal structural changes which need to be made. A larger business won’t be able to operate in the same way that a much smaller one can; quite often smaller businesses have ways of managing employees and dealing with HR in ways that aren’t scalable.

When looking at significant expansion it can often be the case that these structures and processes become unnecessarily ‘bloated’ – and that’s where you may need to be looking at aspects like restructuring departments and re-defining roles.

Training to Expand Skillsets

One solution to the issue above is to improve training across the company in relevant areas, thereby increasing the abilities of your employees without maintaining an unnecessarily large workforce. This allows employees to work more efficiently in a single area, rather than using multiple employees or being forced to contract any work out.

This also ensures vital areas of the business can still run in the event of sickness or loss of staff, and minimise any financial losses which may come from losing a key employee.

Losing Staff; Motivation & Pay

These sorts of changes can often result in affecting job satisfaction and motivation, most noticeably by longer-serving members of staff. New HR and employee management processes should be assessed carefully to minimise any loss of employees, particularly in areas which may result in a financial impact.

Web entrepreneur and business writer Ada Ivanoff raises the issue of pay restructuring which may be a noticeable risk of expansion. She says:

“This will not only make it even harder to find the right people but in turn may encourage your best people [to] leave.”

2. New Competition & Unfamiliar Marketplaces

Your business may have a local or regional coverage and deal with competition well, but looking at a national marketplace opens up a wealth of new competition. Well-established and recognisable firms will already have a strong presence, whether locally or nationally, and breaking through to establish your ‘brand’ is an incredibly important part in making your expansion profitable, both short and long term.

This is particularly important when looking at European or global expansion; Newport Board Group’s MD, Michael Evans, identifies some significant financial barriers for international growth:

  • Local banking; capital sources can often be reserved by banks for local businesses as a priority.
  • Local economies; new target audiences and customers can’t always be tackled in the same way, and will have different financial situations and buying power.
  • Profits from foreign sales; exchange rates could negatively impact profits so it’s important to recognise the risks and set plans and targets to ensure sales success in a global marketplace.

The complications faced from difficulty breaking local markets to financing issues as a global rather than local brand often can be helped by industry bodies and authorities. For example, if you are an architectural firm looking to expand your brand into Europe, an organisation such as the Architects’ Council of Europe would be an enormous help in terms of building up relevant knowledge and getting the right support.

3. Contingency Plans – Protection Against Business Expansion Risks

Identifying risks is just one part of the puzzle, and the next steps should be proactively dealing with these through a number of different avenues. How you implement the protection depends entirely on the risks themselves, and these actions could be anything from company policies to new types of insurance you otherwise didn’t need at a smaller business level.

  • General & product liability insurance: This covers legal costs (such as property damage and legal representation) due to injury to a third party. Product liability specifically covers any products you manufacture or sell as a cause.
  • Professional indemnity insurance: This is for firms who deal with services rather than products, and doesn’t necessarily cover injury. This is an important part of expansion for areas like legal firms or architecture firms where expansion will create a much higher risk.

Expansion can have a major financial impact for any company; financial investment and time to grow in a new marketplace before making significant profits are the most notable implications. The right kind of insurance can make or break your growth and market expansion, providing that all-important financial protection to minimise business expansion risks.

Our professional indemnity insurance products provide specialist protection, backed by our experience as a Lloyd’s broker. This will ensure the best form of protection for your business through a relevant insurer that’s picked by our team.

View full details on our PI insurance products and who we can cover here or, alternatively, get started by filling in our online proposal forms.

Feature image source: Official GDC on Flickr

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