Growth: Austin’s Cycle Shop
Austin was in his seventh year now. His margins were strong, he was profitable, and he was making a nice living from the business. But Austin was ambitious, and he knew there were market opportunities to be pursued.
The city he was in had grown geographically over the previous six years. One newer residential neighborhood didn’t have a bike shop yet, and he wanted to beat his competitors into it. He had already scouted out some space that would work well for his needs and that had good foot traffic. Opening another shop would also make him the first local bike shop to have more than one location.
At the same time, he found an opportunity to buy another store near campus from an owner who was ready to retire. With more stores, Austin could buy inventory for all the shops at greater discounts, tap into the college market, and drive more cash and profit. Motorized scooters had become popular among students, and adding this product line in the acquired store could increase sales. Austin also knew that if he didn’t buy the shop, another competitor might, buying market share and potentially cutting into his business.
Could he do both moves at once? Acquire a competitor and open a shop in a new neighborhood? Although he’d heard horror stories about acquisitions, he thought that in this case, opening a new store in an untested market was possibly the riskier growth strategy.
Austin has asset strength, and he thought he could get enough capital from his investor and the bank. But to analyze the return on these investments (ROI), he decided to develop a business plan for his company’s future expansion. He had to figure out how much cash he would need, carefully assess projected revenue and profit from the new stores, analyze personnel needs, explore lease costs in the new neighborhood, and gather a host of other information about costs and opportunities to present to investors. He just hoped they saw the potential he saw.