When buying a business, some entrepreneurs are only looking at it as a source for future ongoing income, or as a way to replace a regular salary. For them, the business' potential for growth is less important than its ability to produce steady revenue.
The flipside of that coin is an entrepreneur who sees buying a business as a long-term investment. Of course, steady and positive revenue is important to them but equally important is the potential that it has for extraordinary growth.
What Kinds of Businesses Have Limited Growth Potential?
Any company where the owner is the business will have more difficulty growing. As an example, let's look at a hairdresser. There's a finite number of customers that a hairdresser can serve over the course of any given month, which means that they can reach a saturation point where scheduling appointments for new customers will become difficult.
Of course, expansion is possible by adding more staff, but it's important to remember that in businesses like these, customer loyalty is usually more closely linked with the individual than with the company. Additionally, a hairdressing salon is further limited by the number of chairs it has.
A business can also be limited in its growth potential if doing so requires a significant monetary investment. For example, if an existing restaurant wants to grow by adding a second location, there will be some important costs associated with buying or leasing real estate and purchasing equipment, fixtures, and accessories for that location. Businesses that aren't tied to a brick and mortar facility are more likely to be scalable and therefore can grow more easily.
Strategies for Growth to Keep In Mind When Buying a Business
Business growth means expanding the customer base. Many strategies can help you get more customers and grow your business. Here are just a few:
- Invest more in your marketing: an excellent way to increase awareness of your brand among the public is to spend more time and money on your marketing. You may want to consider a comprehensive marketing plan that includes an important online element.
- Increase your capacity: you may eventually be in the enviable position of having to turn potential customers away because your company doesn't have the capacity to serve them. Increasing your capacity may require purchasing more equipment, adding more employees, and expanding your facilities or relocating to a larger space.
- Expand your business footprint: this is achieved by making your products or services available to customers that had been previously beyond your reach. Examples of this can include a store that opens a new location in a different area or a plumbing company that expands its service area to include a neighborhood or town that was previously excluded.