A product line expansion in Business
Business
A product line expansion is where a company introduces a new product in the market that is related or an upgrade of its existing range of products. It occurs after years of running smoothly and progressively increasing the customer base where the current store or location is successful, and the company is ready to open up another one. Opening up a new place is better compared to simply expanding the current company but requires careful considerations (Moon et al., 2017). The existing business should have excellent sales, an overabundance of consumers, and a good cash flow where we do not have enough space, and running out of inventory or turning away customers shows that the business is in good shape. The second thing to consider is whether there is sufficient cash flow or extra money to support the additional cost of opening a second location. There will be increased bills in terms of inventory, rent, and resources, new advertising to introduce to the world, salaries for the increasing staff, licensing and insurance fees, and others. All that spending will require funding, it is wise to keep off other people’s money and look for reliable means, and it is good to look for loans from the bank instead of investors who charge more. Investors typically require about 40% return rate, and even after refunding back the money, they may still own a significant share of the company where banks will only charge 10% of interest on the loan (Santos & Winton, 2019). These resources should be enough to support high costs and, most probably, without good returns until the business picks. Expanding to other cities or too far should be carefully analyzed because it is a leading cause of business failure. The third is to research the market; maybe the ideal selected location has lower demand or more competition or different local regulations. A research will reveal the habits of regular customers, existing competition, what people prefer, and what they are missing. Having all the essential market data will help in selecting the best location for a new site. The location should not be too close with the current business to avoid completion nor too far to prevent extra transport costs. The new area should maintain what is unique with the company and, at the same time, introduce a new product in the neighborhood. Fourth is to consider whether the current company will do with new management or delegate. No one can run two places entirely; hence a second-in-command will be delegated lots of responsibilities. It is wise to be at the new location rather than someone sourced externally because I can identify any challenges early on and correct them before they grow. Having experienced managers in the new area shows the level of importance for its achievement and also the workers are likely to get motivated. Also, it is good to record the finances of each business separately to monitor the progress and challenges of each location differently.
After selecting a good location, I will secure it by deciding whether to buy or lease it by entering a commercial lease or purchasing a commercial property. Solicitors, accountants, and other business advisers will provide information about tax implications and the advantages and disadvantages of each option (McAuslan, 2019). If it is a retail lease, it is advisable to be thoroughly conversant with the clauses of the contract. It is paramount to seek financial advice; I will ask for legal and financial advice before penning down any agreement to avoid mistakes that can cost the company and me dearly. Also, the final decision will be based on the interest of the organization.
Items that are not fixed on the company land but required to expand the product line will not be considered as real property because they are categorized as listed properties like computers and other electronics as well as vehicles that are used for personal and business reasons Mattsson, 2017). There will also be private properties owned by the company, such as furniture and equipment. Only the property that is affixed to the company’s land will be considered as real property such as offices, warehouses, and other structures that will be constructed on the new location. Also, property rights and leasehold improvements will be registered as a real property of the company.
References
Moon, I., Park, K. S., Hao, J., & Kim, D. (2017). Joint decisions on product line selection, purchasing, and pricing. European Journal of Operational Research, 262(1), 207-216.
Mattsson, H. (2017). Aspects of Real Property Rights and their Alteration. The Ontology and Modelling of Real Estate Transactions (pp. 23-34). Routledge.
McAuslan, P. (2019). Bringing the law back in: Essays in land, law, and development. Routledge.
Santos, J. A., & Winton, A. (2019). Bank capital, borrower power, and loan rates. The Review of Financial Studies, 32(11), 4501-4541.