Is now the right time for SMEs to gear up for expansion?

Running a business can be challenging with economies blowing hot and cold, making it difficult for business owners to know what the best course of action should be.  It can be tempting to batten down the hatches and hope for the best, but Martin Bennison believes, with the economy showing positive signs, now maybe the right time to drive forward business expansion?

Businesses are living entities and growth is part of the natural lifecycle.  Expanding a business’s operation can bring many benefits not just to the bottom line but can deliver economies of scale and help you attract better talent, whilst contributing to economic growth, driving both job and wealth creation.  But deciding when and how to expand needs consideration – it needs to be planned so that you use the resources you have available without putting pressure on them and impacting the health of your business.  So, determining when the right time is to invest in growth depends on several factors.

Complacency

Don’t let complacency get in the way of growing your business. Sitting back and not acting, believing that everything will continue as is can be detrimental in the long run.  Things can change and if you don’t plan for them then you will miss out on valuable opportunities.

Economic Environment

The overall economic landscape is increasingly positive with the UK seeing the highest growth of all G7 companies in H1 2024.  GDP growth stands at 0.6%.   Unemployment unexpectedly dropped and wage growth slowed to its lowest level in more than two years, suggesting that the job market is cooling.  Inflation stands at 2.2% up from the Bank of England’s 2% target but below expectations with services inflation dropping for a sixth straight month to 5.2% - better than the 5.5% forecast.  Retail sales also saw a 0.5% uplift in July, proof that consumer spending is returning.  As a result, the pound has strengthened gaining 1.23% against the dollar to reach its highest level in more than three weeks.  However, business owners should keep an eye on inflation and interest rates which affect borrowing costs and deflate consumer spending. I think concerns of a recession are now minimal so firms should be looking to capitalise on this positivity.

Sector performance

Understanding if your industry has the potential to grow is vital.  Certain industries in the UK, such as technology, green energy, and healthcare, are experiencing growth due to government incentives, innovation, and increased demand. If your business is in one of these sectors, this might be an ideal time to expand. Other sectors may also be experiencing growth for various reasons.  The key is to assess if it is long term growth and to invest effectively.  Growth industries will attract new entrants so investment in product development and marketing may be required to help you stand out.

Consumer Behaviour

Shifts in consumer behaviour, such as the growth of e-commerce, increased focus on sustainability, and remote working trends, can create opportunities for certain types of businesses while challenging others.  If your business is seeing demand increase, then this is a positive sign that expansion could be a good thing.  You need to understand where the demand is coming from and rule out seasonal or other anomalies in demand.   It is essential that you ensure you have the resources to fulfil current and projected future demand.  This may require additional investment to support an increase in your workforce, new machinery or even additional premises.  Dealing with an increase in demand needs to be handled effectively to avoid operational issues.

Government Initiatives

The UK government has been supporting certain areas of the economy, especially green technologies, digital transformation, and infrastructure projects. Research whether you can apply for available grants, tax incentives, or other support that could aid your expansion.

Financial Resources

Business is about making profit, and driving expansion can be risky if your business is not in a strong financial position. If you are committed to taking your business to the next level, you need to ensure that you have the right funding solution to support you.  Expanding your operations can be expensive – additional machinery, employees, and marketing costs can mount up.  You need to ensure that you have sufficient cash flow, access to capital, and a clear strategy for managing potential risks as you move forward.

Post Brexit changes

The UK's exit from the EU has led to new trade barriers, supply chain disruptions, and increased regulatory complexity. Depending on the nature of your business, these factors might affect expansion, especially if you rely on international trade.  Ensure that you do your research.  Brexit has also impacted the labour market, with some industries facing labour shortages, especially in hospitality, agriculture, and logistics. Assessing whether your business can attract and retain talent in this environment is vital.

Having a plan for your business which supports its growth is perhaps a normal part of your business activity but executing it and making it happen can sometimes be put on the backburner.  With an improving landscape, the time to expand could be now!