How Do You Assess a Business's Growth Potential

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How Do You Assess a Business's Growth Potential

When you’re scouring the market for the perfect business to buy, you’ll be mindful of the need to assess any prospective purchase for its ability to return steady profits. But in today’s economic climate it could be argued that no business is a sure thing – so how can you be confident that your new business will not only continue to deliver current levels of profitability but will offer the potential for growth and development in the future?

As part of your due diligence, you should consider how the business’s profits a currently generated, whether the business model is sustainable over the long term and what opportunities exist in the market to expand and diversify operations. You’ll need to research the company’s areas of expertise and analyse its strengths (and weaknesses), comparing its performance to that of close competitors and looking at the potential impact of changes in the market.

Research Demand

If you learn all you can about your prospective business’s current customer base, you should also get a feel about the potential for how much potential there is to expand it. For instance, if you’re interested in a town centre restaurant, find out what type of customers are regulars (age, gender, social group) and use that information to explore the size of the market in the local area. Could you access new customers via social media or targeted ad campaigns? Would tweaking the offering slightly – changing the opening hours, perhaps – bring in a new demographic, such as a pre-theatre audience? By segmenting your customer base, you should be able to work out if any unexploited opportunities could drive growth.

Examine the Business Model

Sometimes, growth opportunities can be found by looking at how and why customers currently buy products or services. If you examine the various ways in which customers interact, it could spark ideas about new channels for buying and selling. For example, if you’re considering the potential of a launderette, are there opportunities for increasing revenues by offering an outsourced dry-cleaning service or clothing alterations? Maybe there would be mileage in installing a vending machine for drinks and snacks. For some businesses, accepting new methods of payment – like PayPal – may also bring in new customers. Look closely at trends, too – the market for healthy food options and vegetarian/vegan and free-from foods is a growth area that still has plenty of mileage.

Analyse the Competition

You must know what competition your prospective business faces – or is about to face – and the risk that this represents. You’ll need to understand the value propositions and relative merits of your prospect and its competitors to evaluate how and where you could make gains. If the business you want to buy is one of three competing beauticians in a small town, for instance, find out what each offers and where there may be opportunities to add value. Could you snare the luxury market by taking on a high-end beauty brand or is there demand for more affordable treatments or ‘pop-up’ salons in surrounding villages? Consider if you could mop up any trade from other businesses that have closed – maybe if the local florist has just moved out, your corner shop could carry a few bunches of flowers?

Complementary Markets

By extending your research to cover complementary markets, you may uncover untapped growth opportunities. Let’s say you’re interested in buying a plant nursery that sells plants and other garden-related products to the public. While opening a café might seem like the obvious move, there may be other opportunities to pursue: growing specialist leaves and herbs for supply to local restaurants or to sell to a global audience via the internet; running plantsman courses for local enthusiasts; or offering off-site landscaping or garden design services. If you establish a strong brand, it can often work across complementary sectors – in the same way that easyJet became easyBus and easyHotel.

By using a variety of analytical approaches, you should be able to gain a broader view of your business niche, gain a holistic view of available opportunities and begin to build a strategic business plan to help you take advantage of them. 

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