8 Things Every Business Owner Should Know Before Expanding

Expanding your business is an exciting leap. It means you’re doing something right and are ready for the next big move. But as thrilling as growth can be, it’s important to keep an eye out for potential red flags before diving in. Expansion can either boost your success or become a burden that slows you down. Here’s a roadmap of what to watch for, so you can avoid costly mistakes and keep your business on track.

1. Merging Apples and Oranges? Think Twice!

Ever thought about adding a new type of business to your portfolio? Maybe you run a high-end restaurant and want to acquire a casual burger joint. It sounds like a great idea on paper—after all, they both serve food, right? But here’s the catch: what works for a fine dining establishment might be a disaster for fast food.  

Merging different business models can create logistical nightmares. You’ll face different customer expectations, staffing needs, and management styles, which can drag down the performance of both operations. Before jumping in, ask yourself: Can I really run two very different businesses successfully? 

2. Beware of the “You Can Do Better” Pitch

Sellers love to say, "You’ll do a much better job with this business than I did!" They’ll promise you can raise prices or improve efficiency overnight. Sounds flattering, right? The reality is, if they couldn’t make it work, you’ll have an uphill battle ahead. Do you have the bandwidth to fix their problems? How much should you pay to enjoy the opportunity to fix their problems? 

Turning around a poorly run business isn’t easy. The first few years will likely be challenging, and it could take much longer than you think to see any improvement. So, before getting caught up in the excitement, be realistic about how much time and energy it will take to fix what’s broken. 

3. Employee and Customer Whirlwind

Here’s something many business owners overlook: when you acquire a business, you’re also taking on its people and customers. Employees might expect a pay raise, and customers could brace for price hikes. This can create unrest on both sides, leading to higher turnover and unhappy clients.  

Even if you’ve found some synergies—like cost savings from software or personnel—it doesn’t mean the integration process will be smooth. In fact, combining teams and keeping customers happy might take more effort than you anticipated. Be prepared for some growing pains. 

4. Do the Numbers Actually Add Up?

This might seem obvious, but it’s crucial: make sure the business you’re buying cash flows as-is. Don’t assume you can quickly boost profits by cutting costs or running it more efficiently. The early years post-acquisition can be tough, and sometimes things get worse before they get better. Do you have the cash reserves to weather that storm? If this new venture starts draining your main business, will you still be able to sleep at night? 

Take a hard look at the financials, including any adjustments the seller made to make the business look more profitable than it actually is. 

5. Venturing Into the Unknown: A Risky Move?

It’s easy to get excited about branching into new industries. Maybe you’ve been running an accounting firm and now want to acquire a mail-order business. How hard can it be? The truth is, it’s a whole different world, and you’ll need time—likely years—to learn the ins and outs.  

While you're busy figuring out suppliers, customers, and market dynamics, who’s running your current business? If you don’t have a strong team in place to handle things while you’re gone, both businesses could suffer. Before you leap, make sure you know what you’re getting into. 

5. Watch Out for Hidden Liabilities

When buying a business, it’s easy to focus on the exciting parts like new customers and increased revenue. But don’t forget about the less glamorous details—like taxes. States have changed their tax laws in recent years, and many businesses have liabilities they don’t even know about. For example, if the business you’re buying sells services (at least in part) in multiple states, they might owe sales or income taxes that haven’t been paid.  

If these liabilities come to light after the deal closes, guess who’s responsible? That’s right—you. Make sure you have done your “due diligence” thoroughly and include protections in your agreement to cover any hidden liabilities. 

7. Don’t Fall for the “Act Now!” Pressure

High-pressure sales tactics aren’t just for used cars. Some sellers will push you to act quickly, warning that the deal is only available for a limited time. Don’t let this rush you into a decision. Take your time, run the numbers, and do your due diligence.  

Expanding your business is a huge decision that should never be made on impulse. If the seller is pushing for speed, it might be a sign that they’re trying to offload problems before you notice them. 

8. The Fee Dilemma: Worth It or Not?

Advisors, brokers, and consultants—yes, they charge fees. But the good ones are worth every penny. In fact, they can often help you navigate complex deals that would otherwise leave you in the weeds. Over the past decade, transactions have become more intricate, involving advanced tax strategies and reorganization plans.  

A good advisor will ensure that both you and the seller walk away satisfied. So don’t balk at the fee if you’re getting real value—just make sure you vet the person thoroughly. 

Wrapping It Up: Look Before You Leap 

Expanding your business is a bold move, and when done right, it can be a game-changer. But like any big decision, it comes with risks. Whether it’s navigating cultural differences between businesses, dealing with hidden tax liabilities, or managing new employees, there are plenty of potential pitfalls along the way. The key is to stay vigilant, plan carefully, and surround yourself with the right advisors. 

At Kaizen CPAs, we help business owners like you make informed decisions about growth and expansion. If you're ready to take your business to the next level, but want to avoid the common mistakes that can derail your plans, we're here to help. Click the 'Let’s Chat' button to connect with one of our experts today!